UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
(Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of December 31, 2023, the registrant had
Table of Contents
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Page |
PART I. |
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Item 1. |
1 |
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1 |
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Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) |
2 |
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3 |
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4 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
5 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
36 |
Item 3. |
49 |
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Item 4. |
49 |
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PART II. |
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Item 1. |
51 |
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Item 1A. |
51 |
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Item 2. |
51 |
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Item 3. |
51 |
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Item 4. |
51 |
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Item 5. |
51 |
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Item 6. |
51 |
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53 |
Unless the context indicates otherwise, references in this quarterly report to the “Company,” “Celularity,” “we,” “us,” “our” and similar terms refer to Celularity Inc. and its consolidated subsidiaries.
The Celularity logo, Celularity IMPACT, Biovance, Interfyl, Lifebank, CentaFlex and other trademarks or service marks of Celularity Inc. appearing in this quarterly report are the property of Celularity Inc. This quarterly report on Form 10-Q also contains registered marks, trademarks and trade names of other companies. All other trademarks, registered marks and trade names appearing herein are the property of their respective holders.
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this quarterly report on Form 10-Q, including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations", constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. These statements relate to our future events, including our anticipated operations, research, development and commercialization activities, clinical trials, operating results and financial condition. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Forward-looking statements may include, but are not limited to, statements about:
These forward-looking statements are based on information available as of the date of this quarterly report, and current expectations, forecasts and assumptions, and involve a number of risks and uncertainties that could cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Some factors that could cause actual results to differ include:
ii
iii
For a further discussion of these and other factors that could cause our future results, performance or transactions to differ significantly from those expressed in any forward-looking statement, please see the section titled “Risk Factors” in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2023, or the 2022 Form 10-K. Given these risks, you should not place undue reliance on any forward-looking statements, which are based only on information currently available to us (or to third parties making the forward-looking statements). While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. Except to the extent required by applicable law, we are under no obligation (and expressly disclaim any such obligation) to update or revise their forward-looking statements whether as a result of new information, future events, or otherwise.
iv
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Celularity Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share and per share data)
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September 30, |
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December 31, |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowance of $ |
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Notes receivable |
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Inventory |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Goodwill |
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Intangible assets, net |
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Right-of-use assets - operating leases |
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Restricted cash |
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Inventory, net of current portion |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Accrued R&D software |
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Short-term debt ($ |
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Other short-term debt |
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- |
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Other short-term debt - related party |
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- |
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Short-term debt - related parties |
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- |
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Deferred revenue |
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Total current liabilities |
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Deferred revenue, net of current portion |
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Acquisition-related contingent consideration |
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Noncurrent lease liabilities - operating |
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Noncurrent accrued R&D software |
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- |
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Warrant liabilities |
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Deferred income tax liabilities |
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Other liabilities |
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Total liabilities |
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Stockholders’ equity |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive income |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Celularity Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)
(in thousands, except share and per share data)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Net revenues |
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Product sales and rentals |
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$ |
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$ |
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$ |
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$ |
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Services |
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License, royalty and other |
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Total revenues |
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Operating expenses |
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Cost of revenues (excluding amortization of acquired intangible assets) |
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Product sales and rentals |
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Services |
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Licenses, royalties and other |
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Research and development |
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Software cease-use costs |
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- |
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- |
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Selling, general and administrative |
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Change in fair value of contingent consideration liability |
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( |
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( |
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( |
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Goodwill impairment |
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IPR&D impairment |
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Amortization of acquired intangible assets |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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( |
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( |
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Other income (expense): |
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Interest income |
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Interest expense |
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( |
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( |
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Change in fair value of warrant liabilities |
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Change in fair value of debt |
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( |
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( |
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( |
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Other income (expense), net |
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( |
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( |
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Total other income (expense) |
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( |
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(Loss) income before income taxes |
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( |
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( |
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( |
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Income tax benefit |
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( |
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Net (loss) income |
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$ |
( |
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$ |
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$ |
( |
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$ |
( |
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Change in fair value of debt due to change in credit risk, net of tax |
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Other comprehensive income |
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Comprehensive (loss) income |
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$ |
( |
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$ |
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$ |
( |
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$ |
( |
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Share information: |
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Net (loss) income per share - basic |
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$ |
( |
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$ |
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$ |
( |
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$ |
( |
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Weighted average shares outstanding - basic |
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Net (loss) income per share - diluted |
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$ |
( |
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$ |
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$ |
( |
) |
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$ |
( |
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Weighted average shares outstanding - diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Celularity Inc.
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(in thousands, except share amounts)
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Common Stock |
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Additional |
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Accumulated |
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Accumulated Other Comprehensive |
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Total |
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Shares |
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Amount |
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Capital |
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Deficit |
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Income (Loss) |
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Equity |
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Balances at December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Exercise of stock options |
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- |
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- |
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- |
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Common stock issued pursuant to short-term debt conversion |
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- |
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( |
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Issuance of common stock in PIPE Offering, net of offering expenses |
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- |
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- |
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Issuance of common stock for stem-cells to be used in research and development |
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- |
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- |
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- |
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Vesting of restricted stock units |
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- |
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- |
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- |
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- |
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- |
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Tax withholding on vesting of restricted stock units |
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( |
) |
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- |
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( |
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- |
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- |
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( |
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Issuance of common stock under ATM Agreement |
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- |
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- |
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- |
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Issuance of warrants on senior secured bridge loan |
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- |
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- |
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- |
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- |
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Stock-based compensation expense |
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- |
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- |
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- |
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- |
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Change in fair value of debt due to change in credit risk, net of tax |
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- |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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( |
) |
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- |
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( |
) |
Balances at March 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Exercise of stock options |
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- |
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- |
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- |
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Common stock issued pursuant to short-term debt conversion |
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- |
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- |
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( |
) |
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Issuance of common stock in PIPE Offering, net of offering expenses |
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- |
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- |
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- |
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Issuance of common stock in Registered Direct Offering, net of offering expenses |
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- |
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- |
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Vesting of restricted stock units |
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- |
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- |
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- |
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- |
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- |
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Tax withholding on vesting of restricted stock units |
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( |
) |
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- |
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( |
) |
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- |
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- |
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( |
) |
Issuance of warrants on senior secured bridge loans |
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- |
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- |
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- |
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- |
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Stock-based compensation expense |
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- |
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- |
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- |
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- |
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Change in fair value of debt due to change in credit risk, net of tax |
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- |
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- |
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- |
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- |
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( |
) |
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( |
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Net loss |
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- |
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- |
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- |
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( |
) |
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- |
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( |
) |
Balances at June 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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Common stock issued pursuant to short-term debt conversion |
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- |
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- |
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Issuance of common stock in Registered Direct Offering, net of offering expenses |
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- |
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- |
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Common stock issued pursuant to short-term debt maturity extension |
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- |
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- |
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- |
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Fair value of warrant modification for professional services |
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- |
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- |
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- |
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- |
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Vesting of restricted stock units |
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- |
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- |
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- |
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- |
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- |
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Tax withholding on vesting of restricted stock units |
|
|
( |
) |
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- |
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( |
) |
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- |
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- |
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( |
) |
Stock-based compensation expense |
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- |
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- |
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- |
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- |
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Net loss |
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- |
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- |
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- |
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( |
) |
|
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- |
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( |
) |
Balances at September 30, 2023 |
|
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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|
|
||||||
Balances at December 31, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
- |
|
|
$ |
|
||||
Cumulative effect adjustment ASU 2016-02 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Reclassification of previously exercised stock options |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Exercise of warrants |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||||
Exercise of stock options |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Purchase and retirement of common shares |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Net loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Balances at March 31, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
- |
|
|
$ |
|
||||
Cumulative effect adjustment ASU 2016-02 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
Issuance of common stock to PIPE investor, net of issuance costs |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Exercise of warrants |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Exercise of stock options |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Purchase and retirement of common shares |
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Balances at June 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
- |
|
|
$ |
|
||||
Exercise of warrants |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Exercise of stock options |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Issuance of common stock in ATM offering, net of commissions and offering expenses |
|
|
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
|||
Stock-based compensation expense |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
|
||
Change in fair value of debt due to change in credit risk, net of tax |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
||
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Balances at September 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Celularity Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited) (in thousands)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash flow from operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operations: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Non cash lease expense |
|
|
( |
) |
|
|
( |
) |
Provision for doubtful accounts |
|
|
|
|
|
|
||
Goodwill impairment |
|
|
|
|
|
- |
|
|
IPR&D impairment |
|
|
|
|
|
- |
|
|
Change in fair value of warrant liabilities |
|
|
( |
) |
|
|
( |
) |
Stock-based compensation expense |
|
|
|
|
|
|
||
Change in fair value of contingent consideration |
|
|
( |
) |
|
|
( |
) |
Acquired in-process research and development |
|
|
|
|
|
- |
|
|
Issuance of common stock for stem-cells to be used in research and development |
|
|
|
|
|
- |
|
|
Issuance of common stock relating to Yorkville debt extension |
|
|
|
|
|
- |
|
|
Discounts arising from RWI loan arrangement - related party |
|
|
|
|
|
- |
|
|
Fair value of warrant modification for professional services |
|
|
|
|
|
- |
|
|
Change in fair value of contingent stock consideration |
|
|
( |
) |
|
|
|
|
Change in fair value of debt |
|
|
|
|
|
|
||
Other, net |
|
|
|
|
|
( |
) |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable |
|
|
( |
) |
|
|
( |
) |
Inventory |
|
|
( |
) |
|
|
( |
) |
Prepaid expenses and other assets |
|
|
|
|
|
|
||
Accounts payable |
|
|
|
|
|
|
||
Accrued expenses and other liabilities |
|
|
|
|
|
|
||
Accrued R&D Software |
|
|
|
|
|
- |
|
|
Right-of-use assets and lease liabilities |
|
|
|
|
|
|
||
Deferred revenue |
|
|
|
|
|
|
||
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
Cash flow from investing activities: |
|
|
|
|
|
|
||
Capital expenditures |
|
|
( |
) |
|
|
( |
) |
Purchase of acquired in-process research and development |
|
|
( |
) |
|
|
- |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flow from financing activities: |
|
|
|
|
|
|
||
Proceeds from RWI senior secured bridge loan and warrants - related party |
|
|
|
|
|
- |
|
|
Principal payments of Yorkville short-term debt |
|
|
( |
) |
|
|
- |
|
Proceeds from issuance of senior secured C.V. Starr bridge loan and warrants - related party |
|
|
|
|
|
- |
|
|
Proceeds from the exercise of stock options |
|
|
|
|
|
|
||
Proceeds from the exercise of warrants |
|
|
- |
|
|
|
|
|
Proceeds from PIPE financings |
|
|
|
|
|
|
||
Proceeds from the sale of common stock in ATM offering |
|
|
|
|
|
|
||
Proceeds from other short-term debt |
|
|
|
|
|
|
||
Proceeds from other short-term debt - related party |
|
|
|
|
|
- |
|
|
Tax withholding on vesting of restricted stock units |
|
|
( |
) |
|
|
- |
|
Proceeds from registered direct offerings |
|
|
|
|
|
- |
|
|
Payments of PIPE and other issuance costs |
|
|
( |
) |
|
|
( |
) |
Net cash provided by financing activities |
|
|
|
|
|
|
||
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
|
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash at end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
||
Cash paid for interest |
|
$ |
|
|
$ |
- |
|
|
Supplemental non-cash investing and financing activities: |
|
|
|
|
|
|
||
Property and equipment included in accounts payable and accrued expenses |
|
$ |
( |
) |
|
$ |
( |
) |
Issuance of warrants on senior secured bridge loans |
|
$ |
|
|
$ |
- |
|
|
Common stock issued for short-term debt conversion |
|
$ |
|
|
$ |
- |
|
|
Reduction of right-of-use assets and associated lease liability due to lease modification |
|
$ |
( |
) |
|
$ |
- |
|
ATM related costs included in accrued expenses |
|
$ |
- |
|
|
$ |
( |
) |
PIPE related costs included in accrued expenses |
|
$ |
( |
) |
|
$ |
( |
) |
Interest accrued on senior secured loans within long-term debt - related parties |
|
$ |
( |
) |
|
$ |
- |
|
Reclassification of option liabilities to equity |
|
$ |
- |
|
|
$ |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Celularity Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts)
Celularity Inc., (“Celularity” or the “Company”), formerly known as GX Acquisition Corp. (“GX”), was a blank check company incorporated in Delaware on
On July 16, 2021 (the “Closing Date”), the Company consummated the previously announced merger pursuant to the Merger Agreement and Plan of Reorganization, dated January 8, 2021 (the “Merger Agreement”), by and among GX, Alpha First Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of GX (“First Merger Sub”), Celularity LLC (f/k/a Alpha Second Merger Sub LLC), a Delaware limited liability company and a direct, wholly owned subsidiary of GX (“Second Merger Sub”), and the entity formerly known as Celularity Inc., incorporated under the laws of the state of Delaware on August 29, 2016 (“Legacy Celularity”). The Company refers to these mergers as the “Mergers” and, collectively with the other transactions described in the Merger Agreement, the “Business Combination”. Upon completion of the merger transaction GX changed its name to Celularity Inc. The business combination was accounted for as a reverse recapitalization in conformity with accounting principles generally accepted in the United States.
Description of Business
Celularity is a biotechnology company leading the next evolution in cellular medicine by developing off-the-shelf placental-derived allogeneic cell therapies for the treatment of cancer and immune and infectious diseases. Celularity is developing a pipeline of off-the-shelf placental-derived allogeneic cell therapy product candidates including T cells engineered with a chimeric antigen receptor ("CAR"), natural killer ("NK") cells, and mesenchymal-like adherent stromal cells ("MLASCs") and exosomes. These therapeutic candidates target indications across cancer, infectious and degenerative diseases. Celularity believes that by harnessing the placenta’s unique biology and ready availability, it will be able to develop therapeutic solutions that address a significant unmet global need for effective, accessible and affordable therapeutics. Celularity also actively develops and markets biomaterial products derived from the placenta. Prior to 2023, Celularity marketed those products domestically primarily serving the orthopedic and wound care markets. Celularity now intends to market placental biomaterials outside of the U.S. with an initial focus on markets in the Middle East and North Africa. Celularity's biomaterials business today is comprised primarily of the sale of its Biovance and Interfyl products, directly or through its distribution network. Biovance is decellularized, dehydrated human amniotic membrane derived from the placenta of a healthy, full-term pregnancy. It is an intact, natural extracellular matrix that provides a foundation for the wound regeneration process and acts as a scaffold for restoration of functional tissue. Interfyl is human connective tissue matrix derived from the placenta of a healthy, full-term pregnancy. It is used by a variety of medical specialists to fill soft tissue deficits resulting from wounds, trauma, or surgery. Celularity is developing new placental biomaterial products to deepen the commercial pipeline beyond Biovance and Interfyl. The Company also plans to leverage its core expertise in cellular therapeutic development and manufacturing to generate revenues by providing contract manufacturing and development services to third parties. The initial focus of this new service offering will be to assist development stage cell therapy companies with the development and manufacturing of their therapeutic candidates for clinical trials. In January 2023, the Company announced reprioritization of efforts, which resulted in a reduction of approximately of its workforce as of March 2023. The Company is no longer actively recruiting into its clinical programs.
Celularity is headquartered in Florham Park, NJ. Legacy Celularity acquired Anthrogenesis Corporation (“Anthrogenesis”) in August 2017 from Celgene Corporation (“Celgene”), a global biotechnology company that merged with Bristol Myers Squibb Company. Previously, Anthrogenesis operated as Celgene Cellular Therapeutics, Celgene’s cell therapy division.
The Celularity IMPACT platform capitalizes on the benefits of placenta-derived cells to target multiple diseases, and provides seamless integration, from bio sourcing through manufacturing cryopreserved and packaged allogeneic cells at its purpose-built U.S.-based
January 2023 the Company announced its intention to cease recruitment in the GBM and the HER2+ gastric trials. In addition, in April 2023, the Company announced based on the preliminary results of the phase 1 trial data of CYNK-001, the AML trial would be closed to further enrollment and has completed follow up. The Company is currently not actively investigating CYNK-001 for any indication. During the second quarter of 2023, the Company fully impaired the in-process research and development ("IPR&D") assets associated with CYNK-001. APPL-001 is a placenta-derived MLASC being developed for the treatment of Crohn’s disease, and other degenerative diseases. Due to an internal alignment of corporate resources, the Company has paused development in exosomes to focus on other priorities.
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with governmental regulations and the ability to secure additional capital to fund operations. Drug candidates currently under development will require significant additional approval prior to commercialization, including extensive preclinical and clinical testing and regulatory approval. These efforts require significant amounts of additional capital, adequate personnel, and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
Going Concern
In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) (“ASU 205-40”), the Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued.
As an emerging clinical-stage biotechnology company, Celularity is subject to certain inherent risks and uncertainties associated with the development of an enterprise. In this regard, since the Company’s inception, substantially all of management’s efforts have been devoted to making investments in research and development including basic scientific research into placentally-derived allogeneic cells, pre-clinical studies to support its current and future clinical programs in cellular therapeutics, and clinical development of its cell programs as well as facilities and selling, general and administrative expenses that support its core business operations (collectively the “investments”), all at the expense of the Company’s short-term profitability. The Company has historically funded these investments through limited revenues generated from its biobanking and degenerative disease businesses and issuances of equity and debt securities to public and private investors (these issuances are collectively referred to as “outside capital”). Notwithstanding these efforts, management can provide no assurance that the Company’s research and development and commercialization efforts will be successfully completed, or that adequate protection of the Company’s intellectual property will be adequately maintained. Even if these efforts are successful, it is uncertain when, if ever, the Company will generate significant sales or operate in a profitable manner to sustain the Company’s operations without needing to continue to rely on outside capital. Continued decline in the Company’s share price, further discontinuation of clinical trials, and other changes in the business or market conditions could result in a material impairment of long-lived assets in a future period.
As of the date the accompanying condensed consolidated financial statements were issued (the “issuance date”), management evaluated the significance of the following adverse conditions and events in accordance with ASU 205-40:
6
These uncertainties raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying unaudited condensed consolidated financial statements have been prepared on the basis that the Company will continue to operate as a going concern, which contemplates that the Company will be able to realize assets and settle liabilities and commitments in the normal course of business for the foreseeable future. Accordingly, the accompanying unaudited condensed consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.
7
Basis of Presentation
The Company’s unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The unaudited condensed consolidated financial statements include the accounts of wholly owned subsidiaries, after elimination of intercompany accounts and transactions. The unaudited condensed consolidated financial information presented herein reflects all financial information that, in the opinion of management, is necessary for a fair statement of consolidated financial position, results of operations and cash flows for the periods presented.
The Company’s unaudited condensed consolidated financial statements are prepared in accordance with the U.S. Securities and Exchange Commission’s rules for the presentation of interim financial statements, which permit certain disclosures to be condensed or omitted. These financial statements should be read in conjunction with the Company’s annual audited financial statements as of and for the year ended December 31, 2022.
In the opinion of management, the accompanying unaudited condensed consolidated interim financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of September 30, 2023, and its results of operations, statement of changes in stockholder’s equity and cash flows for the nine months ended September 30, 2023 and 2022. Operating results for the nine months ended September 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The interim financial statements, presented herein, do not contain the required disclosures under GAAP for annual financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s annual audited financial statements and related notes as of and for the year ended December 31, 2022 included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 31, 2023, (the “2022 Form 10-K”).
Use of Estimates
The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions reflected in these unaudited condensed consolidated financial statements include, but are not limited to, assumptions related to the Company’s goodwill and intangible impairment assessment, the valuation of inventory, contingent consideration, short-term debt, determination of incremental borrowing rates, accrual of research and development expenses, and the valuations of stock options and stock warrants. The Company based its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
Fair Value Measurements
Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
Comprehensive Income (Loss)
Comprehensive income (loss) refers to revenues, expenses, gains and losses that under U.S. GAAP are included in comprehensive income (loss) but are excluded from net income (loss) as these amounts are recorded directly as an adjustment to accumulated other comprehensive income (loss). The Company’s only component of other comprehensive income (loss) is comprised of the portion of the total change in fair value of indebtedness accounted for under the fair value option that is attributable to changes in instrument-specific credit risk. During the nine months ended September 30, 2023, the Company recorded instrument-specific credit risk income of $
8
and reclassified $
Net Income (Loss) per Share
Basic net income (loss) per share of common stock is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during each period. Diluted net income (loss) per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as redeemable convertible preferred stock, convertible debt, stock options, restricted stock units and warrants, which would result in the issuance of incremental shares of common stock. However, potential common shares are excluded if their effect is anti-dilutive. For diluted net income (loss) per share in periods where the Company has a net loss, the weighted-average number of shares of common stock is the same for basic net loss per share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive. For the three months ended September 30, 2022, the Company was in a net income position and calculated the diluted net income per share by dividing the Company’s net income by the dilutive weighted average number of share outstanding during the period, determined using the treasury stock method and the average stock price during the period.
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average shares outstanding, basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average dilutive stock options |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
Weighted average restricted stock units |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
Weighted average shares outstanding, diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net (loss) income, basic |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
Net (loss) income, diluted |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding, prior to the use of the two-class method, as they would be anti-dilutive:
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Stock options |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted stock units |
|
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||||
Convertible debt |
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|
||||
Warrants |
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|
||||
|
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Segment Information
Operating segments are defined as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources in assessing performance. The Company manages its operations through an evaluation of
Allowance for Credit Losses and Concentrations of Credit Risk
With the adoption of ASU 2016-13 Financial Instruments — Credit Losses, as noted below, the Company recognizes credit losses based on a forward-looking current expected credit losses. The Company makes estimates of expected credit losses based upon its assessment of various factors, including historical collection experience, the age of accounts receivable balances, credit quality of its customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from customers.
9
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and restricted cash. The Company generally maintains balances in various operating accounts at financial institutions that management believes to be of high credit quality, in amounts that may exceed federally insured limits. The Company has not experienced any losses related to its cash and cash equivalents or restricted cash and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
The Company is subject to credit risk from trade accounts receivable related to both degenerative disease product sales and biobanking services. All trade accounts receivables are a result from product sales and services performed in the United States. As of September 30, 2023, two of the Company's customers comprised
Emerging Growth Company
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act of 1933, as amended, registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended “Exchange Act”) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
This may make comparison of the Company’s condensed consolidated financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Reclassifications
Certain prior period amounts have been reclassified to conform with current year presentation on the condensed consolidated balance sheets and condensed consolidated statements of cash flows between accrued expenses and accrued research and development ("R&D") software to separately present the Palantir cease-use liability recorded during the nine months ended September 30, 2023 (See Note 9 for further information).
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (“ASU 2016-13”), which changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. ASU 2016-13 also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. ASU 2016-13 is effective for annual periods beginning after December 15, 2022 (fiscal year 2023 for the Company), and interim periods within those periods, with early adoption permitted. The Company
Recently Issued Accounting Pronouncements
There were no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements.
The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values:
10
|
|
Fair Value Measurements as of September 30, 2023 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents - money market funds |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Convertible note receivable |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Acquisition-related contingent consideration obligations |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Contingent stock consideration |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Short-term debt - Yorkville |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Warrant liability - July 2023 Registered Direct Warrants |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Warrant liability - April 2023 Registered Direct Warrants |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Warrant liability - May 2022 PIPE Warrants |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Warrant liability - Sponsor Warrants |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Warrant liability - Public Warrants |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
|
Fair Value Measurements as of December 31, 2022 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents - money market funds |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
||
Convertible note receivable |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Acquisition-related contingent consideration obligations |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
Contingent stock consideration |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Short-term debt - Yorkville |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Warrant liability - May 2022 PIPE Warrants |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Warrant liability - Sponsor Warrants |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Warrant liability - Public Warrants |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
During the nine months ended September 30, 2
The Company’s cash equivalents consisted of money market funds. The money market funds was valued using inputs observable in active markets for similar securities, which represents a Level 1 measurement in the fair value hierarchy. The carrying values of accounts receivable, accounts payable, deferred revenue and other current liabilities approximate fair value in the accompanying condensed consolidated financial statements due to the short-term nature of those instruments. The Company believes that the carrying value of its short-term debt - related parties and other short-term debt approximates fair value because the stated terms of this debt is consistent with current market rates.
Valuation of Contingent Consideration
The fair value measurement of the contingent consideration obligations is determined using Level 3 inputs and is based on a probability-weighted income approach. The measurement is based upon unobservable inputs supported by little or no market activity based on the Company’s own assumptions.
11
The following table presents a reconciliation of contingent consideration obligations measured on a recurring basis using Level 3 inputs as of September 30, 2023 and December 31, 2022:
|
|
Balance as of |
|
|
Net |
|
|
Purchases, |
|
|
Fair value |
|
|
Balance as of |
|
|||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Acquisition-related contingent consideration obligations |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Balance as of |
|
|
Net |
|
|
Purchases, |
|
|
Fair value |
|
|
Balance as of |
|
|||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Acquisition-related contingent consideration obligations |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
The fair value of the liability to make potential future milestone and earn-out payments was estimated by the Company at each reporting date based, in part, on the results of a third-party valuation using a probability-weighted expected return method ("PWERM") for the regulatory milestones and a real options technique for commercial and royalty milestones based on various estimates and assumptions, including the probability of achieving specified events, discount rates, and the period of time until earn-out payments are payable and the conditions triggering the milestone payments are met. The actual settlement of contingent consideration could differ from current estimates based on the actual occurrence of these specified events.
At each reporting date, the Company revalues the contingent consideration obligation to estimated fair value and records changes in fair value as income or expense in the Company’s condensed consolidated statements of operations. Changes in the fair value of the contingent consideration obligations may result from changes in discount periods and rates, changes in the timing and amount of revenue estimates and changes in probability assumptions with respect to the likelihood of achieving the various contingent consideration obligations. During the six months ended June 30, 2023, the Company discontinued its unmodified NK cell and AML Cell Therapy clinical trials acquired from the Anthrogenesis acquisition and as a result the fair value of the contingent consideration obligation decreased significantly at such time. The Company has classified all of the contingent consideration as a long-term liability in the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022. See Note 9, “Commitments and Contingencies”, for more information on contingent consideration.
Valuation of Warrant Liability
The warrant liability as of September 30, 2023 is composed of the fair value of warrants to purchase shares of Company Class A common stock, par value $
As of September 30, 2023 and December 31, 2022, the fair value of the warrant liabilities was $
12
The following table provides a roll-forward of the aggregate fair values of the Company’s warrant liabilities for which fair values are determined using either Level 1 or Level 3 inputs:
Balance as of December 31, 2021 |
|
$ |
|
|
May 2022 PIPE warrant issuance |
|
|
|
|
Gain recognized in earnings from change in fair value |
|
|
( |
) |
Balance as of December 31, 2022 |
|
$ |
|
|
|
|
|
|
|
Balance as of December 31, 2022 |
|
$ |
|
|
April 2023 Registered Direct warrant issuance |
|
|
|
|
July 2023 Registered Direct warrant issuance |
|
|
|
|
Gain recognized in earnings from change in fair value |
|
|
( |
) |
Balance as of September 30, 2023 |
|
$ |
|
The fair value of the liability classified warrants are as follows:
|
|
September 30, |
|
|
December 31, |
|
||
Public Warrants |
|
$ |
|
|
$ |
|
||
Sponsor Warrants |
|
|
|
|
|
|
||
2023 Registered Direct Warrants |
|
|
|
|
|
— |
|
|
May 2022 PIPE Warrants |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
Significant inputs for the Sponsor Warrants are as follows:
|
|
September 30, |
|
|
December 31, |
|
||
Common share price |
|
$ |
|
|
$ |
|
||
Exercise price |
|
$ |
|
|
$ |
|
||
Dividend yield |
|
|
% |
|
|
% |
||
Term (years) |
|
|
|
|
|
|
||
Risk-free interest rate |
|
|
% |
|
|
% |
||
Volatility |
|
|
% |
|
|
% |
Significant inputs for the May 2022 PIPE Warrants and the 2023 Registered Direct Warrants are as follows:
|
|
September 30, |
|
|
December 31, |
|
||
Common share price |
$ |
|
|
|
$ |
|
||
Exercise price |
$ |
|
|
$ |
|
|||
Dividend yield |
|
|
% |
|
|
% |
||
Term (years) |
|
|
|
|
|
|||
Risk-free interest rate |
|
|
% |
|
|
% |
||
Volatility |
|
|
% |
|
|
% |
Valuation of the Convertible Note Receivable
The convertible note receivable was received in connection with the disposition of the UltraMIST/MIST business in 2020. At any time on or after January 1, 2021, at the sole discretion of the Company, amounts outstanding under the convertible note receivable (including accrued interest) may be converted into Sanuwave common stock at a defined rate. The convertible promissory note was to be paid on or before August 6, 2021, however, remains outstanding in full at September 30, 2023. As of September 30, 2023 and December 31, 2022, the Company utilized Level 3 inputs on a probability weighted model based on outcomes of a default, repayment and conversion of the note. The measurement is based upon unobservable inputs supported by little or no market activity based on the Company’s own assumptions. The fair value of the convertible note receivable was $
13
Significant inputs for the convertible note valuation model are as follows:
|
|
September 30, |
|
|
December 31, |
|
||
Face value |
|
$ |
|
|
$ |
|
||
Coupon rate |
|
|
|
|
||||
Stock price |
|
$ |
|
|
$ |
|
||
Term (years) |
|
|
|
|
||||
Risk-free interest rate |
|
|
% |
|
|
% |
||
Volatility |
|
n/a |
|
|
n/a |
|
Valuation of Short-Term Debt - Yorkville
The Company elected the fair value option to account for the financial instrument with Yorkville signed on September 15, 2022 (see Note 7). During the nine months ended September 30, 2023, the Company applied a different valuation model for Yorkville given the movement in the Company's share price falling below the floor price at times and triggering of debt repayments. The estimate of the fair value was determined using a scenario analysis which incorporates various repayment and conversion scenarios and corresponding probabilities. The significant inputs to the scenario (PWERM) analysis used to determine the value of each scenario prior to weighting included the following (i) term
The following table provides a roll-forward of the aggregate fair values of the Company’s Yorkville debt for which fair values are determined using Level 3 inputs:
Liabilities: |
|
|
|
|
Balance as of December 31, 2022 |
|
$ |
|
|
Conversion of debt into common shares |
|
|
( |
) |
Principal repayments |
|
|
( |
) |
Fair value adjustment through |
|
|
|
|
Fair value adjustment through accumulated |
|
|
( |
) |
Balance as of September 30, 2023 |
|
$ |
|
Significant inputs for the Yorkville short-term debt valuation model as of December 31, 2022 were as follows:
|
|
December 31, |
|
|
Common share price |
|
$ |
|
|
Credit spread |
|
|
% |
|
Dividend yield |
|
|
% |
|
Term (years) |
|
|
|
|
Risk-free interest rate |
|
|
% |
|
Volatility |
|
|
% |
|
Discount yield |
|
|
% |
14
The Company’s major classes of inventories were as follows:
|
|
September 30, |
|
|
December 31, 2022 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in progress |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
Inventory, gross |
|
|
|
|
|
|
||
Less: inventory reserves |
|
|
( |
) |
|
|
( |
) |
Inventory, net |
|
|
|
|
|
|
||
Balance Sheet Classification: |
|
|
|
|
|
|
||
Inventory |
|
|
|
|
|
|
||
Inventory, net of current portion |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
Inventory, net of current portion includes inventory expected to remain on-hand beyond one year from each balance sheet date presented.
Property and equipment, net consisted of the following:
|
|
September 30, |
|
|
December 31, 2022 |
|
||
Leasehold improvement |
|
$ |
|
|
$ |
|
||
Laboratory and production equipment |
|
|
|
|
|
|
||
Machinery, equipment and fixtures |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
Property and equipment |
|
|
|
|
|
|
||
Less: Accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
For the three months ended September 30, 2023 and 2022, depreciation and amortization expense was $
The Company tests its goodwill for impairment on an annual basis in the fourth quarter of each year for all of its reporting units, or more frequently if events or circumstances indicate a potential impairment. The Company manages its operations through an evaluation of
During annual impairment tests and for any period in which the Company identifies an impairment trigger, the Company’s methodology includes internally generated separate cash flow projections for each reporting unit based on the different drivers that affect each reporting unit. The Company compares the fair values of each of its reporting units to their respective carrying amounts. If the carrying value of the reporting unit exceeds its estimated fair value, a goodwill impairment charge is recorded for the difference, with the impairment loss limited to the total amount of goodwill allocated to that reporting unit. The fair values of each of the Company's reporting units were derived using the income approach, specifically the discounted cash flow method. The use of a discounted cash flow analysis requires significant judgment to estimate the future cash flows and the period of time over which those cash flows will be realized, as well as to determine the appropriate discount rate. The discounted cash flow model reflects management's assumptions regarding revenue growth rates, risk-adjusted discount rates, terminal period growth rates, economic and market trends, and other expectations about the anticipated operating results of the Company's reporting units. As part of the goodwill impairment test, the Company also considers its market capitalization in assessing the reasonableness of the combined fair values estimated for its reporting units. Substantial changes in the cash flows assumptions of the different reporting units may lead to a future impairment or may alter the implied distribution of value between the different reporting units. A material decline in the Company’s stock price may affect the imputed discount rate and the distribution of value between the reporting units, which may also lead to a future impairment.
15
During the first quarter of 2023, as a result of a sustained decrease in its stock price and market capitalization, and its decision to cease recruitment in its GBM and HER2+ gastric trials, the Company tested for impairment due to these triggering events. Based on the results of the impairment analysis, the carrying value exceeded the fair value on the Cell Therapy reporting unit. The Company recognized a $
During the second quarter of 2023, the Company’s stock price and market capitalization continued to decline, and the Company also determined to cease active recruitment in its AML trial and halted all NK programs. The AML trial was the Company’s most advanced clinical program with a relatively large addressable patient population given the high unmet medical need in relapsed and refractory AML. After the Company ceased recruitment, it removed all associated cash flows relating to that program including all other NK related programs as well. As a result of these triggering events, the Company fully impaired the IPR&D assets associated with these product candidates, and performed a goodwill impairment test on its Cell Therapy reporting unit. At June 30, 2023, the estimated fair value of the Cell Therapy reporting unit was determined to be at breakeven compared to the carrying value using a discount rate commensurate with the risks associated with the cash flows for preclinical product candidates. The Company also performed a reconciliation of the aggregate fair value of each reporting unit to the market capitalization of the Company. The analysis showed the fair value of the reporting units approximated our market capitalization, indicating an insignificant control premium. Based on the results of the impairment analysis, the Company did
During the third quarter of 2023, the Company’s stock price and market capitalization continued to further decline. The Company also elected to terminate development of CYCART-19 for B-cell malignancies during the quarter, as well as paused development in exosomes. Therefore, the Company tested for impairment due to these triggering events. Based on the results of the impairment analysis, the carrying value exceeded the fair value on the Cell Therapy reporting unit. The Company recognized a full goodwill impairment charge for the remaining goodwill balance on the Cell Therapy reporting unit of $
At September 30, 2023, the estimated fair value of the Biobanking reporting unit was substantially in excess of its book value. The relative stability of the expected cash flows of the Biobanking reporting unit makes an impairment of goodwill in the future less likely.
During the three and nine months ended September 30, 2022,
The carrying values of goodwill assigned to the Company’s operating segments are as follows:
|
|
Cell Therapy |
|
|
Biobanking |
|
|
Degenerative |
|
|
Total |
|
||||
Balance at December 31, 2022 |
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||
Impairment(1) |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Balance at September 30, 2023 |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
(1) As of September 30, 2023 and December 31, 2022, the accumulated goodwill impairment for the Degenerative Disease reporting unit was $
16
Intangible Assets, Net
Intangible assets, net consisted of the following:
|
|
September 30, |
|
|
December 31, 2022 |
|
|
Estimated |
||
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
||
Developed technology |
|
$ |
|
|
$ |
|
|
|||
Customer relationships |
|
|
|
|
|
|
|
|||
Trade names & trademarks |
|
|
|
|
|
|
|
|||
Reacquired rights |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
||
Less: Accumulated amortization |
|
|
|
|
|
|
|
|
||
Developed technology |
|
|
( |
) |
|
|
( |
) |
|
|
Customer relationships |
|
|
( |
) |
|
|
( |
) |
|
|
Trade names & trademarks |
|
|
( |
) |
|
|
( |
) |
|
|
Reacquired rights |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
Amortizable intangible assets, net |
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
Non-amortized intangible assets |
|
|
|
|
|
|
|
|
||
Acquired IPR&D product rights |
|
|
|
|
|
|
|
|||
|
|
$ |
|
|
$ |
|
|
|
For the three months ended September 30, 2023 and 2022, amortization expense for intangible assets was $
During the nine months ended September 30, 2023, the Company discontinued its unmodified NK cell and AML Cell Therapy clinical trials and as a result recorded an IPR&D impairment of $
Short-Term Debt - Yorkville
On September 15, 2022, the Company entered into a Pre-Paid Advance Agreement (the “PPA”) with YA II PN, Ltd. ("Yorkville"), pursuant to which the Company may request advances of up to $
In connection with the entry into the PPA, the Company received the initial Pre-Paid Advance of $
17
On February 22, 2023, Yorkville provided notice to the Company that a "triggering event" under the terms of the PPA occurred on February 21, 2023 and approximately $
In connection with the Company's 2023 annual stockholder meeting held in June 2023, the Company and Yorkville agreed to lower the floor price to $
During the nine months ended September 30, 2023, Yorkville elected to convert $
Short-Term Debt - Other
On August 21, 2023, the Company entered into a loan agreement with its Chairman and Chief Executive Officer, Dr. Robert Hariri, and two unaffiliated lenders, providing for a loan in the aggregate principal amount of $
Short-Term Debt – Related Parties (Senior Secured Bridge Loans)
C.V. Starr & Co., Inc
On March 17, 2023, the Company entered into a loan agreement (the "Starr Bridge Loan") with C.V. Starr & Co., Inc. (“C.V. Starr”), a stockholder of the Company, for an aggregate principal amount of $
18
Starr Warrant or $
Under the terms of the Starr Bridge Loan, the Company agreed to customary negative covenants restricting its ability to repay indebtedness, pay dividends to stockholders, repay or incur other indebtedness other than as permitted, grant or suffer to exist a security interest in any of the Company’s assets, other than as permitted, or hold cash and cash equivalents less than $
Resorts World Inc Pte Ltd
On May 16, 2023, with written consent provided by Yorkville, the Company entered into a senior secured loan agreement ("RWI Bridge Loan") with Resorts World Inc Pte Ltd, ("RWI") providing for an initial loan in the aggregate principal amount of $
The Company applied the guidance for this transaction in accordance with ASC 470-20, Debt with Conversion and Other Options and ASC 815, Derivatives and Hedging. The net proceeds of the Amended RWI Loan and RWI Warrants were recorded at fair value, which resulted in a total discount of $
Pursuant to the terms of the Amended RWI Loan, the Company was required to apply the net proceeds to the trigger payments due to Yorkville pursuant to the PPA. RWI is affiliated with Lim Kok Thay, a former member of the Company's board of directors. In addition, the Company agreed to customary negative covenants restricting its ability to repay indebtedness, pay dividends to stockholders, repay or incur other indebtedness other than as permitted, grant or suffer to exist a security interest in any of its assets, other than as permitted, or hold cash and cash equivalents less than $
19
Lease Agreements
Right-of-use ("ROU") assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company’s lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate ("IBR") based on the information available at the lease commencement date to determine the appropriate discount rate by multiple asset classes. Variable lease payments that are not based on an index or that result from changes to an index subsequent to the initial measurement of the corresponding lease liability are not included in the measurement of lease ROU assets or liabilities and instead are recognized in earnings in the period in which the obligation for those payments is incurred. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise any such options. Lease expense is recognized on a straight‐line basis over the expected lease term. Rent expense was $
On March 13, 2019, Legacy Celularity entered into a lease agreement for a
On September 14, 2023, the Company entered into a lease amendment on the Company's Florham Park, New Jersey facility to reduce the letter of credit by approximately $
The components of the Company’s lease costs are classified on its condensed consolidated statements of operations as follows:
|
|
For the Three Months Ended September 30, |
|
|
For the Nine Months Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Operating lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Variable lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total operating lease cost |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Short term lease cost |
|
$ |
- |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
The table below shows the cash and non-cash activity related to the Company’s lease liabilities during the period:
|
|
For the Nine Months Ended September 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cash paid related to lease liabilities: |
|
|
|
|
|
|
||
Operating cash flows from operating leases |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Non-cash lease liability activity: |
|
|
|
|
|
|
||
Right-of-use assets obtained in exchange for lease obligations - operating leases |
|
$ |
- |
|
|
$ |
- |
|
20
As of September 30, 2023, the maturities of the Company’s operating lease liabilities were as follows:
2023 (remaining three months) |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total lease payments |
|
|
|
|
Less imputed interest |
|
|
( |
) |
Total |
|
$ |
|
As of September 30, 2023, the weighted average remaining lease term of the Company’s operating lease was
Contingent Consideration Related to Business Combinations
In connection with the Company's acquisition of HLI Cellular Therapeutics, LLC and Anthrogenesis, the Company has agreed to pay future consideration to the sellers upon the achievement of certain regulatory and commercial milestones. As a result, the Company recorded $
Indemnification Agreements
In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and its executive officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not currently aware of any indemnification claims and has not accrued any liabilities related to such obligations in its condensed consolidated financial statements as of September 30, 2023 or December 31, 2022.
Agreement with Palantir Technologies Inc.
On May 5, 2021, Legacy Celularity executed a Master Subscription Agreement with Palantir under which it will pay $
21
Sirion License Agreement
In December 2021, the Company entered into a license agreement (“Sirion License”) with Sirion Biotech GmbH (“Sirion”). Under the Sirion License, Sirion granted the Company a license related to patent rights and know-how associated with poloxamers (“Licensed Product”). As part of the Sirion License, the Company paid Sirion $
Legal Proceedings
At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to such legal proceedings.
Arbitration Demand from Palantir Technologies Inc.
On April 20, 2023, Palantir Technologies Inc. ("Palantir"), commenced an arbitration with JAMS Arbitration asserting claims for declaratory relief and breach of contract relating to the May 5, 2021 Master Service Agreement (the "Palantir MSA"), seeking damages in an amount equal to the full value of the contract. The Company has responded to the arbitration demand and asserted counterclaims for breach of contract, breach of warranty, fraudulent inducement, violation of California’s Unfair Competition Law, amongst others, in relation to the Palantir MSA. While the Company believes that Palantir’s claims are without merit and intends to vigorously defend against those claims, there can be no assurance as to the outcome of the arbitration.
Celularity Inc. v. Evolution Biologyx, LLC, et al.
On April 17, 2023, the Company filed a complaint against Evolution Biologyx, LLC, Saleem S. Saab, individually, and Encyte, LLC (collectively, “Evolution”) in the United States District Court for the District of New Jersey to recover unpaid invoice amounts for the sale of its biomaterial products in the amount of approximately $
Civil Investigative Demand
The Company received a Civil Investigative Demand (the “Demand”) under the False Claims Act, 31 U.S.C. § 3729, dated August 14, 2022, from the U.S. Attorney’s Office for the Eastern District of Pennsylvania. The Demand requests documents and information relating to claims submitted to Medicare, Medicaid, or other federal insurers for services or procedures involving injectable human tissue therapy products derived from amniotic fluid or birth tissue and includes Interfyl. The Company is cooperating with the request and is engaged in an ongoing dialogue with the Assistant U.S. Attorneys handling the Demand. The matter is still in preliminary stages and there is uncertainty as to whether the Demand will result in any liability.
Common Stock
As of September 30, 2023 and December 31, 2022, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue
Voting Power
Except as otherwise required by law or as otherwise provided in any certificate of designation for any series of preferred stock, the holders of common stock possess all voting power for the election of the Company’s directors and all other matters requiring stockholder action. Holders of
22
Dividends
Holders of Class A common stock will be entitled to receive such dividends, if any, as may be declared from time to time by the Company’s board of directors in its discretion out of funds legally available therefor. In no event will any stock dividends or stock splits or combinations of stock be declared or made on common stock unless the shares of common stock at the time outstanding are treated equally and identically.
Liquidation, Dissolution and Winding Up
In the event of the Company’s voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up, the holders of the common stock will be entitled to receive an equal amount per share of all of the Company’s assets of whatever kind available for distribution to stockholders, after the rights of the holders of the preferred stock have been satisfied.
Preemptive or Other Rights
The Company’s stockholders have no preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to common stock.
Election of Directors
The Company’s board of directors is divided into three classes, Class I, Class II and Class III, with only one class of directors being elected in each year and each class serving a three-year term, except with respect to the election of directors at the special meeting held in connection with the merger with GX, Class I directors are elected to an initial one-year term (and three-year terms subsequently), the Class II directors are elected to an initial two-year term (and three-year terms subsequently) and the Class III directors are elected to an initial three-year term (and three-year terms subsequently). There is no cumulative voting with respect to the election of directors, with the result that the holders of more than
Preferred Stock
The Company’s certificate of incorporation authorized
May 2022 PIPE
On May 18, 2022, the Company entered into a securities purchase agreement with an institutional accredited investor providing for the private placement of (i)
On April 10, 2023, upon the closing of a registered direct offering (see further discussion below), the Company amended the existing May 2022 PIPE Warrants, to reduce the exercise price from $
23
April 2023 Registered Direct Warrants of
ATM Agreement
On September 8, 2022, the Company entered into an At-the-Market Sales Agreement (the “ATM Agreement”) with BTIG, LLC, Oppenheimer & Co. Inc. and B. Riley Securities, Inc., acting as sales agents and/or principals, pursuant to which the Company may offer and sell, from time to time in its sole discretion, shares of its common stock, having an aggregate offering price of up to $
Any shares offered and sold in the at-the-market offering will be issued pursuant to the Company’s effective shelf registration statement on Form S-3 and the related prospectus supplement. Under the ATM Agreement, the sales agents may sell shares of common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended. The Company will pay the sales agents a commission rate of up to
During the nine months ended September 30, 2023, the Company received gross and net proceeds of $
March 2023 PIPE
On March 20, 2023, the Company entered into a securities purchase agreement with two accredited investors, including its Chairman and Chief Executive Officer, Dr. Robert Hariri, providing for the private placement of (i)
The Company accounted for the March 2023 PIPE Warrants and common stock as a single non-arm's length transaction. The Company applied the guidance for this transaction in accordance with ASU 2020-06, (Subtopic 470-20): Debt - Debt with Conversion and Other Options, ASC 815 Derivatives and Hedging, and ASC 480 Distinguishing Liabilities from Equity. Accordingly, the net proceeds were allocated between common stock and the March 2023 PIPE warrants at their respective fair value, which resulted in a net premium of $
On September 14, 2023, the Company entered into a warrant amendment on the March 2023 PIPE Warrants with the unaffiliated investor to reduce the exercise price from $
Registered Direct Offerings
On April 10, 2023, the Company closed on a registered direct offering of
24
the $
On July 31, 2023, the Company closed on a registered direct offering of
In connection with the July 31, 2023 registered direct offering described above, the Company also entered into an amendment to certain existing warrants to purchase up to an aggregate of
May 2023 PIPE
On May 18, 2023, the Company closed on a securities purchase agreement with a group of accredited investors, providing for the private placement of an aggregate (i)
Warrants
On March 1, 2022, Celularity and certain of the related party investors amended and restated the investors’ respective Legacy Celularity Warrants (the “A&R Warrants”) to (i) reduce the exercise price per share from $
25
As of September 30, 2023, the Company had
|
|
Number of |
|
|
Exercise |
|
|
Expiration |
||
Dragasac Warrant |
|
|
|
|
$ |
|
|
|||
Public Warrants |
|
|
|
|
$ |
|
|
|||
Sponsor Warrants |
|
|
|
|
$ |
|
|
|||
May 2022 PIPE Warrants (modified) |
|
|
|
|
$ |
|
|
|||
March 2023 PIPE Warrants |
|
|
|
|
$ |
|
|
|||
March 2023 PIPE Warrants (modified) |
|
|
|
|
$ |
|
|
|||
March 2023 Loan Warrants |
|
|
|
|
$ |
|
|
|||
April 2023 Registered Direct Warrants |
|
|
|
|
$ |
|
|
|||
April 2023 Registered Direct Warrants (modified) |
|
|
|
|
$ |
|
|
|||
May 2023 PIPE Warrants |
|
|
|
|
$ |
|
|
|||
June 2023 Warrants |
|
|
|
|
$ |
|
|
|||
June 2023 Loan Warrants |
|
|
|
|
$ |
|
|
|||
July 2023 Registered Direct Warrants |
|
|
|
|
$ |
|
|
|||
|
|
|
|
|
|
|
|
|
Delaware Section 205 Proceeding
On July 14, 2021, Celularity, then operating as GX Acquisition Corp. (“Pre-Merger Company”), held a special meeting of stockholders (the “Special Meeting”) to approve certain matters related to the business combination between the Pre-Merger Company and Celularity Operations, Inc. (“Legacy Celularity”), including a proposal to adopt a certificate of amendment to the Pre-Merger Company’s amended and restated certificate of incorporation (the “Pre-Merger Charter”) to increase the number of authorized shares of its common stock from
A recent decision by the Court of Chancery of the State of Delaware (the “Court”) in Garfield v. Boxed, Inc., 2022 WL 17959766 (Del. Ch. Dec. 27, 2022), created uncertainty as to whether Section 242(b)(2) of the Delaware General Corporation Law (“DGCL”) would have required the Celularity to seek and obtain a vote of a majority of the shares of Class A common stock to approve the Increase Amendment to the Pre-Merger Charter. Thus, to resolve any potential uncertainty, on March 14, 2023, Celularity filed a petition (the “Petition”) in the Court under Section 205 of the DGCL seeking validation and a declaration of effectiveness of the New Charter and actions taken in reliance thereon, including the Increase Amendment and the shares issued pursuant thereto, captioned In re Celularity, Inc., C.A. No. 2023-0317-LWW (Del. Ch.) (the “Section 205 Action”). Section 205 of the DGCL permits the Court, in its discretion, to ratify and validate potentially validate corporate acts and stock after considering a variety of factors.
On March 29, 2023, the Court of Chancery held a hearing in the Section 205 Action and orally granted the Petition, and, later that same day, the Court issued an order in the Section 205 Action, in which it validated and declared effective the Increase Amendment and the Certificate of Incorporation as of 10:00 a.m. (EDT) on July 16, 2021, and all shares of capital stock of the Company issued in reliance on the effectiveness of the Increase Amendment and the Certificate of Incorporation as of the date and time of the original issuance of such shares. The Courts order has addressed and eliminated the uncertainty created by the Garfield Court’s decision.
2021 Equity Incentive Plan
In July 2021, the Company’s board of directors adopted, and the Company’s stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the grant of incentive stock options (“ISOs”) to employees and for the grant of nonstatutory stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of stock awards to employees, directors and consultants.
The number of shares of Class A common stock initially reserved for issuance under the 2021 Plan is
26
shares as may be determined by the Company’s board of directors. Shares subject to stock awards granted under the 2021 Plan that expire or terminate without being exercised in full, or that are paid out in cash rather than in shares, will not reduce the number of shares available for issuance under the 2021 Plan. Additionally, shares issued pursuant to stock awards under the 2021 Plan that are repurchased or forfeited, as well as shares that are reacquired as consideration for the exercise or purchase price of a stock award or to satisfy tax withholding obligations related to a stock award, will become available for future grant under the 2021 Plan.
The 2021 Plan is administered by the Company’s board of directors. The Company’s board of directors, or a duly authorized committee thereof, may delegate to one or more officers the authority to (i) designate employees other than officers to receive specified stock awards and (ii) determine the number of shares to be subject to such stock awards. Subject to the terms of the 2021 Plan, the plan administrator has the authority to determine the terms of awards, including recipients, the exercise price or strike price of stock awards, if any, the number of shares subject to each stock award, the fair market value of a share, the vesting schedule applicable to the awards, together with any vesting acceleration, the form of consideration, if any, payable upon exercise or settlement of the stock award and the terms and conditions of the award agreements for use under the 2021 Plan. The plan administrator has the power to modify outstanding awards under the 2021 Plan. Subject to the terms of the 2021 Plan and in connection with a corporate transaction or capitalization adjustment, the plan administrator may not reprice or cancel and regrant any award at a lower exercise price, strike price or purchase price or cancel any award with an exercise price, strike price or purchase price in exchange for cash, property or other awards without first obtaining the approval of the Company’s stockholders.
2017 Equity Incentive Plan
The 2017 Equity Incentive Plan (the “2017 Plan”) adopted by Legacy Celularity’s board of directors and approved by Legacy Celularity’s stockholders provided for Legacy Celularity to grant stock options to employees, directors and consultants of Legacy Celularity. In connection with the closing of the Business Combination and effectiveness of the 2021 Plan, no further grants will be made under the 2017 Plan.
The total number of stock options that could have been issued under the 2017 Plan was
The 2017 Plan is administered by the Company’s board of directors or, at the discretion of the Company’s board of directors, by a committee of the board of directors. The exercise prices, vesting and other restrictions were determined at the discretion of Legacy Celularity’s board of directors, or its committee if so delegated, except that the exercise price per share of stock options could not be less than
Stock Option Valuation
Awards with Service Conditions
The fair value of each option is estimated on the date of grant using a Black-Scholes option pricing model that takes into account inputs such as the exercise price, the estimated fair value of the underlying common stock at grant date, expected term, expected stock price volatility, risk-free interest rate, and dividend yield. The fair value of each grant of stock options was determined by the Company using the methods and assumptions discussed below. Certain of these inputs are subjective and generally required judgment to determine.
27
The following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted during the nine months ended September 30, 2023:
Risk-free interest rate |
|
|
|
|
|
|
|
|
% |
|
Expected term (in years) |
|
|
|
|
|
|
|
|
|
|
Expected volatility |
|
|
|
|
|
|
|
|
% |
|
Expected dividend yield |
|
|
|
|
|
|
|
|
% |
The weighted average grant-date fair value per share of stock options granted during the nine months ended September 30, 2023 and 2022 was $
The following table summarizes option activity with service conditions under the 2021 Plan and the 2017 Plan:
|
|
Options |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Outstanding at January 1, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding at September 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Vested and expected to vest September 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Exercisable at September 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
The aggregate intrinsic value of options is calculated as the difference between the exercise price of the stock options and the fair value of Class A common stock for those options that had exercise prices lower than the fair value of Class A common stock.
During the nine months ended September 30, 2023, the aggregate intrinsic value was $
The Company recorded stock-based compensation expense relating to option awards with service conditions of $
Awards with Market Conditions
In September 2021, the Company awarded options to acquire a total of
Awards with Performance Conditions
In connection with the advisory agreement signed with Robin L. Smith, MD (see Note 15), the Company awarded options to acquire a total of
Restricted Stock Units
28
The Company issues restricted stock units (“RSUs”) to employees that generally vest over a
The following table summarizes activity related to RSU stock-based payment awards:
|
|
Number of Shares |
|
|
Weighted |
|
||
Outstanding at January 1, 2023 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
$ |
|
||
Vested |
|
|
( |
) |
|
$ |
|
|
Forfeited |
|
|
( |
) |
|
$ |
|
|
Outstanding at September 30, 2023 |
|
|
|
|
$ |
|
The Company recorded stock-based compensation expense of $
Performance Stock Units
In July 2023, the Company granted
Stock-Based Compensation Expense
The Company recorded stock-based compensation expense in the following expense categories of its condensed consolidated statements of operations:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Cost of revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The following table provides information about disaggregated revenue by product and services:
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Product sales and rentals, net |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Processing and storage fees, net |
|
|
|
|
|
|
|
|
|
|
|
|
||||
License, royalty and other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
29
The following table provides changes in deferred revenue from contract liabilities:
|
|
2023 |
|
|
2022 |
|
||
Balance at January 1 |
|
$ |
|
|
$ |
|
||
Deferral of revenue* |
|
|
|
|
|
|
||
Recognition of unearned revenue |
|
|
( |
) |
|
|
( |
) |
Balance at September 30 |
|
$ |
|
|
$ |
|
* Deferral of revenue resulted from payments received in advance of performance under the biobanking services storage contracts that are recognized as revenue under the contract as performance is completed. Also includes up-front payment incurred in connection with signing of the Regeneron Services Agreement in August 2023 (see Note 13 below).
Regeneron Research Collaboration Services Agreement
On August 25, 2023, the Company entered into a multi-year research collaboration services agreement with Regeneron Pharmaceuticals, Inc. ("Regeneron"), pursuant to which the Company will support the research effort of Regeneron's allogeneic cell therapy candidates (the "Regeneron Services Agreement"). The Regeneron Services Agreement’s initial focus is the research on a targeted allogeneic gamma delta chimeric antigen receptor (CAR) T-cell therapy owned by Regeneron designed to enhance proliferation and potency against solid tumors. Payments to the Company under the Regeneron Services Agreement included a non-refundable up-front payment and payments based upon the achievement of defined milestones according to written statements of work. The Regeneron Services Agreement will expire
The Regeneron Services Agreement grants Regeneron a royalty-free, fully-paid up, worldwide, non-exclusive license, with the right to grant sublicenses, to the Company’s intellectual property (“IP”) to the extent that any such license is necessary for Regeneron to fully use the Company’s research services. The Company determined that the (1) research licenses and (2) the research activities performed by the Company represent a single combined performance obligation under the Regeneron Services Agreement. The Company determined that Regeneron cannot benefit from the licenses separately from the research activities because these services are specialized and rely on the Company’s expertise such that these activities are highly interrelated and therefore not distinct. Accordingly, the promised goods and services represent one combined performance obligation and the entire transaction price was allocated to that single combined performance obligation. The performance obligation will be satisfied over the research term as the Company performs the research activities.
The upfront payment of $
Sorrento Therapeutics, Inc. License and Transfer Agreement
The Company and Sorrento Therapeutics, Inc. ("Sorrento"), a related party, are party to a License and Transfer Agreement for the exclusive worldwide license to CD19 CAR-T constructs for use in placenta-derived cells and/or cord blood-derived cells for the treatment of any disease or disorder (the “2020 Sorrento License Agreement”). The Company retains the right to sublicense the rights granted under the agreement with Sorrento’s prior written consent. As consideration for the license, the Company is obligated to pay Sorrento a royalty equal to low single-digit percentage of net sales (as defined within the agreement) and a royalty equal to low double-digit percentage of all sublicensing revenues (as defined within the agreement). The 2020 Sorrento License Agreement will remain in effect until terminated by either the Company or Sorrento for uncured material breach upon 90 days written notice or, after the first anniversary of the effective date of the 2020 Sorrento License Agreement, by the Company for convenience upon six months’ written notice to Sorrento. On October 19, 2023, Sorrento filed a Plan of Reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas which plan contemplates a liquidation of the debtor. If the Plan is confirmed
30
by the Bankruptcy Court, the Company believes that Sorrento will not be able to perform under the license and that any rights the Company might have under the license would be unenforceable. After assessing the status of the IND to determine an optional path forward for the program, the Company has elected to terminate development of CYCART-19 for B-cell malignancies during the third quarter of 2023. The Company may continue pre-clinical development of other T-cell candidates.
Genting Innovation PTE LTD Distribution Agreement
On May 4, 2018, concurrently with Dragasac’s equity investment in Legacy Celularity, Legacy Celularity entered into a distribution agreement with Genting Innovation PTE LTD (“Genting”), a related party, pursuant to which Genting was granted supply and distribution rights to certain Company products in select Asia markets (the “Genting Agreement”). The Genting Agreement grants Genting limited distribution rights to the Company’s then-current portfolio of degenerative disease products and provides for the automatic rights to future products developed by or on behalf of the Company.
The term of the Genting Agreement was renewed on January 31, 2023, and automatically renews for successive 12-month terms unless Genting provides written notice of its intention not to renew at least three months prior to a renewal term or the Genting Agreement is otherwise terminated by either party for cause.
On June 14, 2023, the Genting Agreement was amended to include manufacturing rights in the territories covered under the agreement, expanded to include two new countries, and a commitment by the Company to provide technology transfer pursuant to the plan established by a Joint Steering Committee.
Genting and Dragasac are both direct subsidiaries of Genting Berhad, a public limited liability company incorporated and domiciled in Malaysia.
Celgene Corporation License Agreement
The Company is party to a license agreement with Celgene (the “Celgene Agreement”) pursuant to which the Company granted Celgene two separate licenses to certain intellectual property. The Celgene Agreement grants Celgene a royalty-free, fully-paid up, worldwide, non-exclusive license to the certain intellectual property (“IP”) for pre-clinical research purposes in all fields and a royalty-free, fully-paid up, worldwide license, with the right to grant sublicenses, for the development, manufacture, commercialization and exploitation of products in the field of the construction of any CAR, the modification of any T-lymphocyte or NK cell to express such a CAR, and/or the use of such CARs or T-lymphocytes or NK cells for any purpose, including prophylactic, diagnostic, and/or therapeutic uses thereof. The Celgene Agreement will remain in effect until its termination by either party for cause.
Pulthera, LLC Binding Term Sheet
Concurrent with the entry into the securities purchase agreement for the private placement described in Note 10 above, the Company executed a binding term sheet to negotiate and enter into a sublicense agreement of certain assets from an affiliate of Pulthera, LLC (the "sublicensor"). Pursuant to the binding term sheet, the Company paid sublicensor $
The Company regularly reviews its segments and the approach used by management to evaluate performance and allocate resources. The Company manages its operations through an evaluation of
The reportable segments were determined based on the distinct nature of the activities performed by each segment. Cell Therapy broadly refers to therapies the Company is researching and developing. Therapies being researched are unproven and in various phases of development. Degenerative Disease produces, sells and licenses products used in surgical and wound care markets. Biobanking collects stem cells from umbilical cords and placentas and provides storage of such cells on behalf of individuals for future use.
The Company manages its assets on a total company basis, not by operating segment. Therefore, the chief operating decision maker does not regularly review any asset information by operating segment and, accordingly, asset information is not reported by operating segment. Total assets were $
31
Financial information by segment for the three months ended September 30, 2023 and 2022 is as follows:
|
|
Three Months Ended September 30, 2023 |
|
|||||||||||||||||
|
|
Cell |
|
|
BioBanking |
|
|
Degenerative |
|
|
Other |
|
|
Total |
|
|||||
Net sales |
|
$ |
- |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||
Gross profit |
|
|
- |
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
|
||
Direct expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Segment contribution |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Indirect expenses |
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
|
|||||
Loss from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
( |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
(a) Components of other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Change in fair value of contingent consideration liability |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
||||
Change in fair value of contingent stock consideration |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
IPR&D impairment |
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
||||
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total other |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
Three Months Ended September 30, 2022 |
|
|||||||||||||||||
|
|
Cell |
|
|
BioBanking |
|
|
Degenerative |
|
|
Other |
|
|
Total |
|
|||||
Net sales |
|
$ |
- |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||
Gross profit |
|
|
- |
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Direct expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Segment contribution |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Indirect expenses |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
(b) |
|
( |
) |
|||
Income from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
( |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
(b) Components of other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Change in fair value of contingent consideration liability |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Change in fair value of contingent stock consideration |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total other |
|
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|
|
|
Financial information by segment for the nine months ended September 30, 2023 and 2022 is as follows:
32
|
|
Nine Months Ended September 30, 2023 |
|
|||||||||||||||||
|
|
Cell |
|
|
BioBanking |
|
|
Degenerative |
|
|
Other |
|
|
Total |
|
|||||
Net sales |
|
$ |
- |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||
Gross profit |
|
|
- |
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|||
Direct expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Segment contribution |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Indirect expenses |
|
|
|
|
|
|
|
|
|
|
|
|
(c) |
|
|
|||||
Loss from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
( |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
(c) Components of other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Change in fair value of contingent consideration liability |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Change in fair value of contingent stock consideration |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
IPR&D impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total other |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
Nine Months Ended September 30, 2022 |
|
|||||||||||||||||
|
|
Cell |
|
|
BioBanking |
|
|
Degenerative |
|
|
Other |
|
|
Total |
|
|||||
Net sales |
|
$ |
- |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
|||
Gross profit |
|
|
- |
|
|
|
|
|
|
( |
) |
|
|
- |
|
|
|
( |
) |
|
Direct expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Segment contribution |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
( |
) |
|
|
( |
) |
Indirect expenses |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
(d) |
|
( |
) |
|||
Loss from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
( |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
(d) Components of other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Change in fair value of contingent consideration liability |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Change in fair value of contingent stock consideration |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total other |
|
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|
|
|
Amended and Restated Employment Agreement with Dr. Robert Hariri
On January 25, 2023, in order to address the Company's current working capital requirements, Dr. Robert Hariri, M.D., Ph.D., the Company's Chairman and Chief Executive Officer, agreed to temporarily reduce payment of his salary pursuant to his employment agreement to minimum wage level with the remaining salary deferred until December 31, 2023. As of September 30, 2023, $
March 2023 PIPE
On March 20, 2023, the Company entered into a securities purchase agreement with two accredited investors, including its Chairman and Chief Executive Officer, Dr. Robert Hariri, for an aggregate purchase price of $
33
Loan Agreement with Dr. Robert Hariri
On August 21, 2023, the Company entered into a $
Consulting Agreement with Dr. Andrew Pecora
Advisory Agreement with Robin L. Smith MD
On August 16, 2022, the Company entered into an advisory agreement with Robin L. Smith, MD, a member of the Company’s board of directors, to receive $
COTA, Inc
In November 2020, Legacy Celularity and COTA, Inc. (“COTA”) entered into an Order Schedule (the “Order Schedule No. 2”), to the Master Data License Agreement between Legacy Celularity and COTA, dated October 29, 2018, pursuant to which COTA will provide the licensed data in connection with AML patients. The COTA Order Schedule No. 2 will terminate on the one-year anniversary following the final licensed data deliverable described therein. Andrew Pecora, M.D., Celularity’s former President, is the Founder and Chairman of the Board of COTA and Dr. Robin L. Smith, a member of the Company’s board of directors, is an investor in COTA. The Company did
Cryoport Systems, Inc
During the nine months ended September 30, 2023 and 2022, the Company made payments totaling $
C.V. Starr Loan
On March 17, 2023, the Company entered into a $
Resorts World Inc Pte Ltd
On May 16, 2023, the Company entered into a $
Sorrento Therapeutics, Inc.
In September 2020, the Company entered into the 2020 Sorrento Agreement, with Sorrento. Henry Ji, Ph.D., a member of Legacy Celularity’s board of directors, currently serves as President and Chief Executive Officer of Sorrento. Sorrento was also a significant stockholder of the Company and invested in the July 2021 private investment in public equity financing. During the nine months ended
34
September 30, 2023 and 2022, the Company made payments totaling $
The Company has evaluated subsequent events and there are no items requiring disclosure except the following:
Yorkville
As part of the letter agreement signed in September 2023, the Company was required to pay Yorkville $
CEO Promissory Note
On October 12, 2023, in order to further address the Company's immediate working capital requirements, Robert Hariri, M.D., Ph.D., the Company's Chairman and Chief Executive Officer, and the Company signed a promissory note ("CEO Promissory Note") for $
License Agreement with BioCellgraft, Inc.
On December 11, 2023, the Company and BioCellgraft, Inc. ("BioCellgraft") entered into a license agreement whereby the Company granted an exclusive license to BioCellgraft, with the right to sublicense, to develop and commercialize certain licensed products to the dental market in the United States over an initial
Settlement Agreement with Palantir Technologies Inc.
On December 21, 2023, the Company and Palantir entered into a settlement and release agreement pursuant to the JAMS arbitration proceeding asserting claims for declaratory relief and breach of contract relating to the Palantir MSA (refer to Note 9 for further details). Both parties agreed to dismiss the arbitration proceeding and dispute and provide for mutual releases upon the Company's satisfaction of a settlement payment obligation. The Company agreed to pay Palantir a total settlement payment of $
Board Member Departure
On December 24, 2023, Robin L. Smith, a Class II member of the board of directors, notified the board of directors of her intention to resign as a member of the board effective December 24, 2023. Dr. Smith’s decision to resign was not reported to be due to any disagreement with the Company on any matter, or relating to its operations, policies, or practices.
35
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion of our financial condition and results of operations together with the unaudited interim condensed consolidated financial statements and the notes thereto included elsewhere in this report and other financial information included in this report. The following discussion may contain predictions, estimates and other forward-looking statements. See “Special Note Regarding Forward-Looking Statements.” These forward-looking statements involve a number of risks and uncertainties, including those discussed in this report and under “Part I — Item 1A. Risk Factors” in the 2022 Form 10-K. These risks could cause our actual results to differ materially from any future performance suggested below.
Overview
We are a biotechnology company leading the next evolution in cellular medicine by developing off-the-shelf placental-derived allogeneic cell therapies for the treatment of cancer and immune and infectious diseases. We are developing a pipeline of off-the-shelf placental-derived allogeneic cell therapy product candidates including T cells engineered with a chimeric antigen receptor, or CAR, natural killer, or NK cells, mesenchymal-like adherent stromal cells, or MLASCs, and exosomes. These therapeutic candidates target indications across cancer, infectious and degenerative diseases. We believe that by harnessing the placenta’s unique biology and ready availability, we will be able to develop therapeutic solutions that address a significant unmet global need for effective, accessible and affordable therapeutics. We also actively develop and market biomaterial products derived from the placenta. Prior to 2023, we marketed those products domestically primarily serving the orthopedic and wound care markets. We now intend to market placental biomaterials outside of the United States with an initial focus on markets in the Middle East and North Africa. Our biomaterials business today is comprised primarily of the sale of our Biovance and Interfyl products, directly or through our distribution network. Biovance is decellularized, dehydrated human amniotic membrane derived from the placenta of a healthy, full-term pregnancy. It is an intact, natural extracellular matrix that provides a foundation for the wound regeneration process and acts as a scaffold for restoration of functional tissue. Interfyl is human connective tissue matrix derived from the placenta of a healthy, full-term pregnancy. It is used by a variety of medical specialists to fill soft tissue deficits resulting from wounds, trauma, or surgery. We are developing new placental biomaterial products to deepen the commercial pipeline beyond Biovance and Interfyl. We also plan to leverage our core expertise in cellular therapeutic development and manufacturing to generate revenues by providing contract manufacturing and development services to third parties. The initial focus of this new service offering will be to assist development stage cell therapy companies with the development and manufacturing of their therapeutic candidates for clinical trials. In January 2023, we announced reprioritization of efforts, which resulted in a reduction of approximately one-third of our workforce as of March 2023. We are no longer actively recruiting into our clinical programs.
Our Celularity IMPACT platform capitalizes on the benefits of placenta-derived cells to target multiple diseases, and provides seamless integration, from bio sourcing through manufacturing cryopreserved and packaged allogeneic cells, in our purpose-built U.S.-based 147,215 square foot facility. We believe the use of placental-derived cells, sourced from the placentas of full-term healthy informed consent donors, has potential inherent advantages, from a scientific and an economic perspective. First, relative to adult-derived cells, placental-derived cells demonstrate greater stemness, meaning the ability to expand and persist. Second, placental-derived cells are immunologically naïve, meaning the cells have never been exposed to a specific antigen, and suggesting the potential for less toxicity and for low or no graft-versus-host disease, or GvHD, in transplant. Third, our placental-derived cells are allogeneic, meaning they are intended for use in any patient, as compared to autologous cells, which are derived from an individual patient for that patient’s sole use. We believe this is a key difference that will enable readily available off-the-shelf treatments that can be delivered faster, more reliably, at greater scale and to more patients.
From a single source material, the postpartum human placenta, we derive four allogeneic cell or extracellular vesicle types: T cells, genetically modified NK cells, MLASCs and exosomes, which have the potential to support multiple therapeutic programs. CYCART-19 is a placental-derived CAR-T cell therapy, previously in development for the treatment of B-cell malignancies, initially targeting the cluster of differentiation 19, or CD19, receptor, the construct and related CARs for which are in-licensed from Sorrento. In the first quarter of 2022, we submitted an IND to investigate CYCART-19 for treatment of B-cell malignancies and in late May 2022, received formal written communication from FDA requesting additional information before we could proceed with the Phase 1/2 clinical trial. After assessing the status of the IND to determine an optional path forward for the program, we elected to terminate development of CYCART-19 for B-cell malignancies during the third quarter of 2023. We may continue pre-clinical development of other T-cell candidates. CYNK-001 is a placental-derived unmodified NK cell. In 2022, we had active and approved clinical trials under development for the treatment of acute myeloid leukemia, or AML, a blood cancer, and for glioblastoma multiforme, or GBM, a solid tumor cancer. Due to a need to prioritize corporate resources, in January 2023 we announced our intention to cease recruitment in the GBM and the HER2+ gastric trials. In addition, in April 2023, we announced based on the preliminary results of the phase 1 trial data of CYNK-001, the AML trial would be closed to further enrollment and completed follow up. We are not actively investigating CYNK-001 for any indication. During the second quarter of 2023, we fully impaired the in-process research and development ("IPR&D") assets associated with CYNK-001. APPL-001 is a placenta-derived MLASC being developed for the treatment of Crohn’s disease, and other degenerative diseases. Due to an internal alignment of corporate resources, we paused development in exosomes to focus on other priorities.
36
Our Celularity IMPACT manufacturing process is a seamless, fully integrated process designed to optimize speed and scalability from the sourcing of placentas from full-term healthy informed consent donors through the use of proprietary processing methods, cell selection, product-specific chemistry, manufacturing and controls, or CMC, advanced cell manufacturing and cryopreservation. The result is a suite of allogeneic inventory-ready, on demand placental-derived cell therapy products. We also operate and manage a commercial biobanking business that includes the collection, processing and cryogenic storage of certain birth byproducts for third-parties.
Our current science is the product of the cumulative background and effort over two decades of our seasoned and experienced management team. We have our roots in Anthrogenesis Corporation, or Anthrogenesis, a company founded under the name Lifebank in 1998 by Robert J. Hariri, M.D., Ph.D., our founder and Chief Executive Officer, and acquired in 2002 by Celgene Corporation, or Celgene. The team continued to hone their expertise in the field of placental-derived technology at Celgene through August 2017, when we acquired Anthrogenesis. We have a robust global intellectual property portfolio comprised of over 1,500 patents and patent applications protecting our Celularity IMPACT platform, our processes, technologies and current key cell therapy programs. We believe this know-how, expertise and intellectual property will drive the rapid development and, if approved, commercialization of these potentially lifesaving therapies for patients with unmet medical needs.
Recent Developments
Private Placement - March 2023
In March 2023, we closed a private placement of (i) 9,381,841 shares of our Class A common stock, and (ii) accompanying warrants to purchase up to 9,381,841 shares of our Class A common stock, or the March 2023 PIPE Warrants, for $0.8343 per share and $0.125 per accompanying March 2023 PIPE Warrant, for an aggregate purchase price of approximately $9.0 million (of which Dr. Hariri subscribed for $2.0 million) pursuant to that certain securities purchase agreement dated March 20, 2023 with two accredited investors, including our Chairman and Chief Executive Officer, Dr. Robert Hariri. Each March 2023 PIPE Warrant has an exercise price of $3.00 per share, is immediately exercisable, will expire on March 27, 2028 (five years from the date of issuance), and is subject to customary adjustments for certain transactions affecting our capitalization.
We also entered into a registration rights agreement with the purchasers whereby we agreed to register the resale of the shares of our Class A common stock and the shares of our Class A common stock issuable upon exercise of the March 2023 PIPE Warrants as well as the shares issued as payment pursuant to the binding term sheet for a sublicense (described below). We were required to prepare and file a registration statement with the Securities and Exchange Commission, or SEC, within 30 days of the filing of our annual report on Form 10-K for the year ended December 31, 2022, and to use commercially reasonable efforts to have the registration statement declared effective within 45 days if there is no review by the SEC, and within 90 days in the event of such review, and in any event, no later than June 30, 2023.
In September 2023, we entered into a warrant amendment on the March 2023 PIPE Warrants with the unaffiliated investor to reduce the exercise price from $3.00 per share to $1.00 per share for warrants to purchase 7,296,987 shares of Class A common stock. The warrant amendment was executed as consideration for professional services rendered to us. As a result, we accounted for the transaction in accordance with ASC 718 Stock-Based Compensation based on the calculated incremental fair value attributable to the modified warrant compared to the original warrant immediately prior to the modification and recognized an expense of $402,000 on the condensed consolidated statements of operations for the three and nine months ended September 30, 2023.
Senior Secured Bridge Loans
In March 2023, we entered into a Loan Agreement with C.V. Starr & Co. Inc., one of our stockholders, or C.V. Starr, providing for a loan in the aggregate principal amount of $5.0 million net of an original issue discount of $100,000, which bears interest at a rate of 12.0% per year, with the first year of interest being paid in kind on the last day of each month, and matures March 17, 2025, or the Starr Bridge Loan, and warrants to acquire up to an aggregate 750,000 shares of our Class A common stock, or the Starr Warrant, at a purchase price of $0.125 per whole share underlying the Starr Warrant (or $93,750). The Starr Warrant has a 5-year term and an exercise price of $0.71 per share. In June 2023, we granted C.V. Starr additional warrants to acquire up to an aggregate 500,000 shares of our Class A common stock which has a 5-year term and an exercise price of $0.81 per share.
Pursuant to the terms of the Starr Bridge Loan, we agreed to customary negative covenants restricting our ability to repay indebtedness, pay dividends to stockholders, repay or incur other indebtedness other than as permitted, grant or suffer to exist a security interest in any our assets, other than as permitted, or hold cash and cash equivalents less than $3.0 million for more than five consecutive business days. In addition to the negative covenants in the Starr Bridge Loan, the Starr Bridge Loan include customary events of default. Pursuant to the terms of the Starr Bridge Loan, we granted Starr a senior security interest in all of our assets.
In May 2023, we entered into a senior secured loan agreement with Resorts World Inc Pte Ltd, or RWI, providing for an initial loan in the aggregate principal amount of $6.0 million net of an original issue discount of $120,000, which bears interest at a rate of 12.5% per year, with the first year of interest being paid in kind on the last day of each month, and matures June 14, 2023, or the RWI Bridge Loan. Pursuant to the terms of the RWI Bridge Loan, we are required to apply the net proceeds from the RWI Bridge Loan to
37
the payment due to Yorkville pursuant to that certain pre-paid advance agreement dated September 15, 2022, as amended, or the PPA. Any other use of proceeds requires prior written approval by RWI. RWI is affiliated with Lim Kok Thay, a member of our board of directors.
In June 2023, we entered into an amended and restated senior secured loan agreement, or the Amended Loan, with RWI, to amend and restate the previously announced senior secured loan agreement with RWI, or the Initial Loan, in its entirety. The Amended Loan provided for an additional loan in the aggregate principal amount of $6.0 million net of an original issue discount of $678,000, which bears interest at a rate of 12.5% per year, with the first year of interest being paid in kind on the last day of each month, and matures March 17, 2025. The Amended Loan extended the maturity date of the Initial Loan to March 17, 2025. In addition, the Amended Loan provided for the issuance of warrants to acquire up to an aggregate of 3,000,000 shares of Celularity’s Class A common stock, or the RWI Warrant, at a purchase price of $0.125 per whole share underlying the RWI Warrant (or an aggregate purchase price of $375,000). The RWI Warrant has a 5-year term and an exercise price of $0.81 per share. Pursuant to the terms of the Amended Loan, Celularity was required to apply the net proceeds to the payments due under the Yorkville PPA.
Pursuant to the terms of the RWI Bridge Loan, as amended, we agreed to customary negative covenants restricting our ability to repay indebtedness, pay dividends to stockholders, repay or incur other indebtedness other than as permitted, grant or suffer to exist a security interest in any of our assets, other than as permitted, or hold cash and cash equivalents less than $3.0 million for more than five consecutive business days, and includes customary events of default. We entered into a forbearance agreement with RWI in September 2023. We granted RWI a senior security interest in all of our assets, pari passu with C.V. Starr pursuant to the Starr Bridge Loan.
During the third quarter of 2023 and as of the issuance date, our cash and cash equivalents continues to be below the $3.0 million minimum liquidity covenant, which per the terms of the loan agreements with RWI and C.V. Starr caused an event of default. Since we are currently in default and its probable that we would not be in compliance with the $3.0 million minimum liquidity covenant at a subsequent measurement date, we reclassified both loans as a current liability reflected as short-term debt - related parties on the condensed consolidated balance sheets as of September 30, 2023.
Binding Term Sheet for Sublicense Agreement
Concurrent with the entry into the securities purchase agreement for the March 2023 private placement described above; we executed a binding term sheet to negotiate and enter into a sublicense of certain assets from an affiliate of the accredited investor party to the private placement transaction. Pursuant to the binding term sheet, we paid the sublicensor $3.0 million in cash and issued $1.0 million of shares of our Class A common stock (1,694,915 shares based on the closing price on March 17, 2023) as consideration for stem-cells inventory to be used in research and development.
Registered Direct Offerings
In April 2023, we closed on a registered direct offering of 9,230,770 shares of our Class A common stock together with warrants to purchase up to 9,230,770 shares of our Class A common stock at a combined purchase price of $0.65 per share and accompanying warrant, resulting in total gross proceeds of approximately $6.0 million before deducting placement agent commissions and other estimated offering expenses. The warrants have an exercise price of $0.75, will be exercisable beginning six months after the date of issuance and will expire five years thereafter. We also amended existing warrants to purchase up to an aggregate of 4,054,055 shares at an exercise price of $8.25 per share, with an expiration date of May 20, 2027, held by the same investor, effective upon the closing of the offering to reduce the exercise price to $0.75 per share and extended expiration date to five and one-half years following the closing of the offering. We used the $5.5 million net proceeds from the offering to repay our obligations to Yorkville under that certain pre-paid advance agreement dated September 15, 2022, as amended, or the PPA.
In July 2023, we closed on a securities purchase agreement with an institutional accredited investor, or the Purchase Agreement, providing for the sale and issuance of (i) 8,571,429 shares of its Class A common stock, par value $0.0001 per share, or the Class A common stock, and (ii) accompanying warrants to purchase up to 8,571,429 shares of Class A common stock, at a combined purchase price of $0.35 per share and accompanying warrant, for an aggregate purchase price of approximately $3.0 million. Each warrant has an exercise price of $0.35 per share, is initially exercisable beginning six months following the date of issuance, and will expire five years from the initial exercise date. In connection with the offering described above, we also entered into an amendment to certain existing warrants to purchase up to an aggregate of 8,928,572 shares at an exercise price of $0.75 per share and a termination date of October 10, 2028 (consisting of all of the warrants originally issued in May 2022 and a portion of which were issued in April 2023), pursuant to which, effective upon the closing of the offering, such amended warrants will have a reduced exercise price of $0.35 per share.
Private Placement – May 2023
In May 2023, we entered into a securities purchase agreement with a group of accredited investors, providing for the private placement of an aggregate (i) 5,813,945 shares of our Class A common stock and (ii) accompanying warrants to purchase up to 5,813,945 shares of Class A common stock, or the May 2023 PIPE Warrants, for $0.52 per share and $0.125 per accompanying May 2023 PIPE Warrant, for an aggregate purchase price of approximately $3.7 million, which private placement closed on May 18, 2023 upon satisfaction of customary closing conditions.
38
Each May 2023 PIPE Warrant has an exercise price of $1.00 per share, is immediately exercisable, will expire on May 18, 2028 (five years from the date of issuance), and is subject to customary adjustments for certain transactions affecting our capitalization. The May 2023 PIPE Warrants may not be exercised if the aggregate number of shares of Class A common stock beneficially owned by the holder thereof (together with its affiliates) would exceed the specified percentage cap provided therein (which may be adjusted upon 61 days advance notice) immediately after exercise thereof.
We also entered into a registration rights agreement with the purchasers whereby we agreed to register the resale of the shares of Class A common stock and the shares of Class A common stock issuable upon exercise of the May 2023 PIPE Warrants. We will be required to prepare and file a registration statement with the SEC within 30 days, and to use commercially reasonable efforts to have the registration statement declared effective within 45 days if there is no review by the SEC, and within 90 days in the event of such review, and in any event, no later than July 31, 2023.
Regeneron Research Collaboration Services Agreement - August 2023
On August 25, 2023, we entered into a multi-year research collaboration services agreement with Regeneron Pharmaceuticals, Inc. or Regeneron, pursuant to which we will support the research effort of Regeneron's allogeneic cell therapy candidates (the Regeneron Services Agreement). The Regeneron Services Agreement’s initial focus is the research on a targeted allogeneic gamma delta chimeric antigen receptor (CAR) T-cell therapy owned by Regeneron designed to enhance proliferation and potency against solid tumors. Payments to us under the Regeneron Services Agreement included a non-refundable up-front payment and payments based upon the achievement of defined milestones according to written statements of work. The Regeneron Services Agreement will expire five years from the effective date and may be terminated immediately by either party for the uncured material breach, bankruptcy, or insolvency of the other party. Regeneron may also terminate for convenience upon 30 days’ written notice.
Lease Amendment - September 2023
On September 14, 2023, we entered into a lease amendment with the landlord to reduce the amount required to be held under the letter of credit by approximately $4.9 million to a new letter of credit for $9.9 million in exchange for an increase in annual base rent of approximately $400,000 per annum. The new base rental rate commenced in October 2023. The new letter of credit account settled on October 17, 2023, which reduced our restricted cash allowing for funds to be used for general corporate purposes. We also agreed to cooperate with the landlord on a sustainability plan and we received consent for a desk sharing arraignment to support the Regeneron Research and Collaboration Agreement.
Cell Therapy – Impairments
During the third quarter of 2023, our stock price and market capitalization continued to further decline. We also elected to terminate development of CYCART-19 for B-cell malignancies during the third quarter of 2023, as well as paused development in exosomes. Therefore, we tested for impairment due to these triggering events. Based on the results of the impairment analysis, the carrying value exceeded the fair value on the Cell Therapy reporting unit and we incurred a full goodwill impairment charge for the remaining goodwill balance on the Cell Therapy reporting unit. We also performed a reconciliation of the aggregate fair value of each reporting unit to the market capitalization of the Company. The analysis showed the fair value of the reporting units approximated our market capitalization, indicating an insignificant control premium.
Based on the results of the impairment analyses, we recognized a $82.7 and $112.3 million goodwill impairment charge during the three and nine months ended September 30, 2023, respectively, relating to our Cell Therapy reporting unit in our condensed consolidated statements of operations. In addition, we incurred an IPR&D impairment charge of $107.8 million due to discontinuing our Cell Therapy clinical trials during the nine months ended September 30, 2023.
Palantir – Cease-Use Costs
In May 2021, our subsidiary, Legacy Celularity executed a Master Subscription Agreement with Palantir Technologies, Inc., or Palantir, under which it agreed to pay $40.0 million over five years for access to Palantir’s Foundry platform along with certain professional services. In January 2023, we ceased use of the software and provided a notice of dispute to Palantir on the basis that the software has not performed as promised and that Palantir has failed to provide us with the professional services necessary to successfully implement, integrate and enable the Foundry platform. As a result, in accordance with ASC 420 Exit or Disposal Costs, during the nine months ended September 30, 2023, we recognized the remaining related cease-use costs and liability estimated based on the discounted future cash flows of contract payments for $24.2 million which is included as a component of research and development expense in the condensed consolidated statements of operations. We have both a current and noncurrent liability for accrued research and development software on the condensed consolidated balance sheets for a total liability of $31.5 million and $7.3 million as of September 30, 2023 and December 31, 2022, respectively. For the nine months ended September 30, 2022, we had recorded $6.0 million, which was on a straight-line basis, which was included as a component of research and development expense in our condensed consolidated statements of operations. Palantir has filed to compel arbitration of this dispute. See also Item 1 of Part II of this quarterly report on Form 10-Q.
On December 21, 2023, we entered into a settlement and release agreement pursuant to the JAMS arbitration proceeding asserting claims for declaratory relief and breach of contract relating to the Palantir Master Subscription Agreement. Both parties agreed to dismiss
39
the arbitration proceeding and dispute and provide for mutual releases upon satisfaction of our settlement payment obligation. We agreed to pay Palantir a total settlement payment of $3,500 with $1,500 to be paid by January 2, 2024, and the remaining $2,000 to be paid by March 21, 2024. As of the issuance date no payments have been made. In the event of a material breach or default by the breaching party, and a failure to cure the breach within five business days, liquidated damages amount of $250 shall be incurred.
Middle East Distribution
We continue to work with our distribution partners to enable sales of our biomaterial products in the Middle East. The commercialization of our biomaterial products is subject to local regulatory approval, and we are actively working with our partners to obtain such approvals from health authorities in the Kingdom of Saudi Arabia and the United Arab Emirates. As of the date of this quarterly report on Form 10-Q, we have not received the requisite local regulatory approvals and have not generated any revenue from sales of our biomaterial products in these territories.
Government Regulation
In August 2023, the FDA conducted an inspection at our Florham Park, New Jersey manufacturing facility. The FDA issued a Form FDA 483, which is a list of inspectional observations provided at the conclusion of the inspection, relating to our Interfyl and CentaFlex human tissue-based biomaterial products. Specifically, the FDA issued a Form 483 consisting of 7 observations that generally pertain to FDA’s current good manufacturing practices (“cGMP”) regulations for drug and biologic products. We provided a timely response to the FDA regarding each observation asserting that the subject products are not drug or biologic products subject to the drug and biologic cGMP regulations, rather these products are solely subject to FDA’s current good tissue practices (“cGTP”) regulations and, thus, the Form 483 observations were not applicable. The FDA had no observations regarding our compliance with cGTP regulations. We remain committed to resolving the FDA’s concerns; however, it is not possible to predict the outcome or timing of a resolution at this time. There can be no assurance that the FDA will be satisfied with our responses to the Form 483 inspectional observations, nor any assurance as to the timeframe that may be required for us to adequately address the FDA’s concerns.
Going Concern
In accordance with Accounting Standards Update ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), or ASU 205-40, we evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.
As an emerging clinical-stage biotechnology company, we are subject to certain inherent risks and uncertainties associated with the development of an enterprise. In this regard, since our inception, substantially all of management’s efforts have been devoted to making investments in research and development including basic scientific research into placentally-derived allogeneic cells, pre-clinical studies to support our current and future clinical programs in cellular therapeutics, and clinical development of our cell programs as well as facilities and selling, general and administrative expenses that support our core business operations (collectively the “investments”), all at the expense of our short-term profitability. We have historically funded these investments through limited revenues generated from our biobanking and degenerative disease businesses and issuances of equity and debt securities to public and private investors (these issuances are collectively referred to as “outside capital”). Notwithstanding these efforts, management can provide no assurance that our research and development and commercialization efforts will be successfully completed, or that adequate protection of our intellectual property will be adequately maintained. Even if these efforts are successful, it is uncertain when, if ever, we will generate significant sales or operate in a profitable manner to sustain our operations without needing to continue to rely on outside capital. Continued decline in our share price, further discontinuation of clinical trials, and other changes in the business or market conditions could result in a material impairment of our long-lived assets in a future period.
As of the date the accompanying consolidated financial statements were issued, or the issuance date, management evaluated the significance of the following adverse conditions and events in accordance with ASU 205-40:
40
These uncertainties raise substantial doubt about our ability to continue as a going concern. The accompanying unaudited interim condensed consolidated financial statements have been prepared on the basis that we will continue to operate as a going concern, which contemplates that we will be able to realize assets and settle liabilities and commitments in the normal course of business for the
41
foreseeable future. Accordingly, the accompanying unaudited interim condensed consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.
Business Segments
We manage our operations through an evaluation of three distinct business segments: Cell Therapy, Degenerative Disease, and BioBanking. The reportable segments were determined based on the distinct nature of the activities performed by each segment. Cell Therapy broadly refers to cellular therapies we are researching and developing, which are unproven and in various phases of development. All of the cell therapy programs fall into the Cell Therapy segment. We have no approved cell therapy product and have not generated revenue from the sale of cellular therapies to date. Degenerative Disease produces, sells and licenses products used in surgical and wound care markets, such as Biovance, Biovance 3L, Interfyl and CentaFlex. We sell products in this segment both using our own sales force as well as independent distributors. We are developing additional tissue-based products for the Degenerative Disease segment. BioBanking collects stem cells from umbilical cords and placentas and provides storage of such cells on behalf of individuals for future use. We operate in the biobanking business primarily under the LifebankUSA brand. For more information about our reportable business segments refer to Note 14, “Segment Information” of our unaudited interim condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.
Acquisitions and Divestitures
Our current operations reflect strategic acquisitions and divestitures that we have made since formation. Additional details regarding the following acquisitions can be found in Note 1, “Nature of Business” to our unaudited interim condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.
In May 2017, we acquired HLI Cellular Therapeutics, LLC, or HLI CT, from Human Longevity Inc. HLI CT operated LifebankUSA, a private umbilical cord blood stem cell and cord tissue bank that offers parents the option to collect, process and cryogenically preserve newborn umbilical cord blood stem cells and cord tissue units. The HLI CT acquisition also provided us with rights to a portfolio of biomaterial assets, including Biovance and Interfyl. At the time of the HLI CT acquisition, Biovance and Interfyl were subject to an exclusive distribution arrangement with Alliqua Biomedical, Inc., or Alliqua. In May 2018, we acquired certain assets from Alliqua, including Alliqua’s biologic wound care business, which included the marketing and distribution rights to Biovance and Interfyl.
In August 2017, we acquired Anthrogenesis, a wholly-owned subsidiary of Celgene. The Anthrogenesis acquisition included a portfolio of pre-clinical and clinical stage assets, including key cellular therapeutic assets that we continue to develop. The Anthrogenesis acquisition gives us access to Anthrogenesis’ proprietary technologies and processes for the recovery of large quantities of high-potential stem cells and cellular therapeutic products derived from postpartum human placentas, each an Anthrogenesis Product. As part of the Anthrogenesis acquisition, some of the inventors of the Anthrogenesis Products and other key members of the Anthrogenesis Product development team joined us.
In October 2018, we acquired CariCord Inc., or CariCord, a family cord blood bank established by ClinImmune Labs University of Colorado Cord Blood Bank and the Regents of the University of Colorado, a body corporate, for and on behalf of the University of Colorado School of Medicine.
Licensing Agreements
In the ordinary course of business, we license intellectual property and other rights from third parties and have also out-licensed our intellectual property and other rights, including in connection with our acquisitions and divestitures, described above. Additional details regarding our licensing agreements can be found in Note 13, “License and Distribution Agreements” to our unaudited interim condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.
In September 2020, we entered into a license and transfer agreement, or the Sorrento Agreement, with Sorrento. Henry Ji, Ph.D., a former member of the board of directors of our wholly-owned subsidiary, which we refer to as Legacy Celularity, currently serves as President and Chief Executive Officer of Sorrento. Sorrento was also a significant stockholder of our company and invested in the July 2021 private investment in public equity financing concurrent with the closing of the business combination among our company and Legacy Celularity. Pursuant to the Sorrento Agreement, we obtained a worldwide license for the CD19 CAR construct that forms the basis of the genetic modification for CYCART-19.
In August 2017, in connection with the Anthrogenesis acquisition, we entered into a license agreement, or the Celgene License, with Celgene, which has since been acquired by Bristol Meyers Squibb. Pursuant to the Celgene License, we granted Celgene a worldwide, royalty-free, fully-paid up, non-exclusive license, without the right to grant sublicenses (other than to its affiliates), under Anthrogenesis’ intellectual property in existence as of the date of the Celgene License or as developed by Celgene in connection with any transition services activities related to the merger for non-commercial pre-clinical research purposes, as well as to develop,
42
manufacture, commercialize and fully exploit products and services that relate to the construction of any CAR, the modification of any T-cell or NK cell to express such a CAR, and/or the use of such CARs or T-cells or NK cells for any purpose, which commercial license is sublicensable. Either party may terminate the Celgene License upon an uncured material breach of the agreement by the other party or insolvency of the other party.
In August 2017, Legacy Celularity also issued shares of its Series X Preferred Stock to Celgene as merger consideration and entered into a contingent value rights agreement, or the CVR Agreement, with Celgene pursuant to which Legacy Celularity issued one contingent value right or CVR, in respect of each share of Legacy Celularity Series X Preferred Stock issued to Celgene in connection with the Anthrogenesis acquisition. The CVR Agreement entitles the holders of the CVRs to an aggregate amount, on a per program basis, of $50.0 million in regulatory milestones and an aggregate $125.0 million in commercial milestone payments with respect to certain of our investigational therapeutic programs. In addition, with respect to each such program and calendar year, the CVR holders will be entitled to receive a royalty equal to a mid-teen percentage of the annual net sales for such program’s therapeutics from the date of the first commercial sale of such program’s therapeutic in a particular country until the latest to occur of the expiration of the last to expire of any valid patent claim covering such program therapeutic in such country, the expiration of marketing exclusivity with respect to such therapeutic in such country, and August 2027 (i.e., the tenth anniversary of the closing of the acquisition of Anthrogenesis). No payments under the CVR Agreement have been made to date. We estimate the liability associated with the CVR quarterly. Changes to that liability include but are not limited to changes in our clinical programs, assumptions about the commercial value of those programs and the time value of money.
Components of Operating Results
Net revenues
Net revenues include: (i) sales of biomaterial products, including Biovance, Biovance 3L, Interfyl, and CentaFlex of which our direct sales are included in Product Sales and Rentals while sales through our network of distribution partners are included in License, royalty and other; and (ii) the collection, processing and storage of umbilical cord and placental blood and tissue after full-term pregnancies, collectively, Services.
Cost of revenues
Cost of revenues consists of labor, material and overhead costs associated with our two existing commercial business segments, biobanking and degenerative disease. Biobanking costs include the cost of storage and transportation kits for newly banked materials as well as tank and facility overhead costs for cord blood and other units in storage. Degenerative disease costs include costs associated with procuring placentas, qualifying the placental material and processing the placental tissue into a marketable product. Costs in the degenerative disease segment include labor and overhead costs associated with the production of the Biovance, Biovance 3L, Interfyl and CentaFlex product lines. Cost of revenues associated with direct sales are part of Product Sales and Rentals while cost of revenues associated with sales through our network of distribution partners are included in License, royalty and other.
Research and development expense
Our research and development expenses primarily relate to basic scientific research into placentally derived allogeneic cells, pre-clinical studies to support our current and future clinical programs in cellular medicine, clinical development of our NK cell programs and facilities, depreciation and other direct and allocated expenses incurred as a result of research and development activities. We incur expenses for third party CROs, that assist in running clinical trials, clinical trial supply costs, personnel expenses for research scientists, specialized chemicals and reagents used to conduct biologic research, expense for third party testing and validation and various overhead expenses including rent and facility maintenance expense. Basic research, research collaborations involving partners and research designed to enable successful regulatory submissions is critical to our current and future success in cell therapy. As a result of our reprioritization efforts, we anticipate that our research and development expenditures will decrease in the near term. The amount of our research and development expenditures will depend on numerous factors, including the timing of clinical trials, preliminary evidence of efficacy in clinical trials and the number of indications that we choose to pursue.
General and administrative expense
Selling, general and administrative expense consists primarily of personnel costs including salaries, bonuses, stock compensation and benefits for specialized staff that support our core business operations. Executive management, finance, legal, human resources and information technology are key components of selling, general and administrative expense and those expenses are recognized when incurred. We expect that as a result of our reprioritization efforts, we will see a decrease in our selling, general and administrative costs in the near term. The magnitude and timing of our selling, general and administrative costs will depend on the progress of clinical trials, commercialization efforts for any approved therapies including the release of new products within the degenerative disease portfolio, changes in the regulatory environment or staffing needs to support our business strategy.
43
Change in fair value of contingent consideration liability
Because the acquisitions of Anthrogenesis from Celgene and HLI CT were accounted for as business combinations, we recognized acquisition-related contingent consideration on the balance sheets in accordance with the acquisition method of accounting. See “— Acquisitions and Divestitures” for more information. The fair value of contingent consideration liability is determined based on a probability-weighted income approach derived from revenue estimates and a probability assessment with respect to the likelihood of achieving regulatory and commercial milestone obligations and royalty obligations. The fair value of acquisition related contingent consideration is remeasured each reporting period with changes in fair value recorded in the condensed consolidated statements of operations. Changes in contingent consideration fair value estimates result in an increase or decrease in our contingent consideration obligation and a corresponding charge or reduction to operating results. Key elements of the contingent consideration are regulatory milestone payments, sales milestone payments and royalty payments. Regulatory payments are due on regulatory approval of certain cell types in the United States and the European Union. Regulatory milestone payments are one time but are due prior to any potential commercial success of a cell type in a specific indication. Royalty payments are a percentage of net sales. Sales milestone payments are due when certain aggregate sales thresholds have been met. Management must use substantial judgment in evaluating the value of the contingent consideration. Estimates used by management include but are not limited to: (i) the number and type of clinical programs that we are likely to pursue based on the quality of our preclinical data, (ii) the time required to conduct clinical trials, (iii) the odds of regulatory success in those trials, (iv) the potential number of patients treatable for the indications in which we are successful and (v) the pricing of treatments that achieve commercial status. All of these areas involve substantial judgment on the part of management and are inherently uncertain.
Results of Operations
Comparison of Three Months Ended September 30, 2023 to September 30, 2022
|
|
Three Months Ended |
|
|
|
|
|
Percent |
|
|||||||
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
Increase |
|
|
Increase |
|
||||
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Product sales and rentals |
|
$ |
1,684 |
|
|
$ |
1,041 |
|
|
$ |
643 |
|
|
|
61.8 |
% |
Services |
|
|
1,427 |
|
|
|
1,405 |
|
|
|
22 |
|
|
|
1.6 |
% |
License, royalty and other |
|
|
675 |
|
|
|
1,689 |
|
|
|
(1,014 |
) |
|
|
(60.0 |
)% |
Total revenues |
|
|
3,786 |
|
|
|
4,135 |
|
|
|
(349 |
) |
|
|
(8.4 |
)% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenues (excluding amortization of acquired |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Product sales and rentals |
|
|
557 |
|
|
|
812 |
|
|
|
(255 |
) |
|
|
(31.4 |
)% |
Services |
|
|
398 |
|
|
|
899 |
|
|
|
(501 |
) |
|
|
(55.7 |
)% |
License, royalty and other |
|
|
2,647 |
|
|
|
5,502 |
|
|
|
(2,855 |
) |
|
|
(51.9 |
)% |
Research and development |
|
|
5,182 |
|
|
|
20,351 |
|
|
|
(15,169 |
) |
|
|
(74.5 |
)% |
Software cease-use costs |
|
|
243 |
|
|
|
— |
|
|
|
243 |
|
|
|
100.0 |
% |
Selling, general and administrative |
|
|
10,748 |
|
|
|
14,907 |
|
|
|
(4,159 |
) |
|
|
(27.9 |
)% |
Change in fair value of contingent consideration liability |
|
|
— |
|
|
|
(33,243 |
) |
|
|
33,243 |
|
|
|
(100.0 |
)% |
Goodwill impairment |
|
|
82,714 |
|
|
|
— |
|
|
|
82,714 |
|
|
|
100.0 |
% |
Amortization of acquired intangible assets |
|
|
553 |
|
|
|
553 |
|
|
|
— |
|
|
|
— |
|
Total operating expenses |
|
|
103,042 |
|
|
|
9,781 |
|
|
|
93,261 |
|
|
|
953.5 |
% |
Loss from operations |
|
$ |
(99,256 |
) |
|
$ |
(5,646 |
) |
|
$ |
(93,610 |
) |
|
|
1658.0 |
% |
Net Revenues and Cost of Revenues
Net revenues for the three months ended September 30, 2023 was $3.8 million, a decrease of $0.3 million, or 8.4% compared to the prior year period. The decrease was primarily due to decreased license, royalty and other revenues due to loss of business with Evolution, a former distribution partner offset by higher product sales.
Cost of revenues for the three months ended September 30, 2023 was $3.6 million, a decrease of $3.6 million, or 50.1% compared to the prior year period. The decrease was primarily due to the recognition of previously deferred inventory material costs variances of $4.5 million in license, royalty and other cost of revenues for the three months ended September 30, 2022 as a result of a change in production plans related to lower degenerative disease sales than previously forecasted in the prior period offset by a reserve for obsolescence recorded during the three months ended September 30, 2023.
44
Research and Development Expenses
Research and development expenses for the three months ended September 30, 2023 were $5.2 million, a decrease of $15.2 million, or 74.5% compared to the prior year period. The decrease was primarily due to lower personnel costs resulting from our March 2023 reduction in force, the Palantir platform fees captured in software cease-use costs in the current period, lower clinical trial costs and lab supplies as we determined to discontinue certain clinical trials of our cell therapy candidates, as well as lower allocated costs as compared to the prior period.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended September 30, 2023 were $10.7 million, a decrease of $4.2 million, or 27.9% compared to the prior year period. The primary reason for the decrease was driven by lower personnel costs and lower consulting expenses resulting from our March 2023 reduction in force.
Goodwill and IPR&D Impairments
Goodwill and IPR&D impairment charges for the three months ended September 30, 2023 was $82.7 million and $0, respectively, due to the decline in future revenue projections in the Cell Therapy business driven by discontinuation of clinical trials and changes in our strategy and pipeline (see Note 6, “Goodwill and Intangible Assets” in our unaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q).
Change in Fair Value of Contingent Consideration Liability
The change in fair value of contingent consideration liability for the three months ended September 30, 2023 was $0, an increase of $33.2 million, or 100% compared to the period year period. The increase resulted from a change in market-based assumptions as we discontinued our Cell Therapy clinical trials during 2023 (for more information about changes in the fair value of contingent consideration liability refer to Note 3, “Fair Value of Financial Assets and Liabilities” in our unaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q).
Other Income (Expense)
|
|
Three Months Ended |
|
|
|
|
|
Percent |
|
|||||||
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
Increase |
|
|
Increase |
|
||||
Interest income |
|
$ |
23 |
|
|
$ |
108 |
|
|
$ |
(85 |
) |
|
|
(78.7 |
)% |
Interest expense |
|
|
(971 |
) |
|
|
— |
|
|
|
(971 |
) |
|
|
(100.0 |
)% |
Change in fair value of warrant liabilities |
|
|
5,187 |
|
|
|
9,333 |
|
|
|
(4,146 |
) |
|
|
(44.4 |
)% |
Change in fair value of debt |
|
|
2,003 |
|
|
|
(291 |
) |
|
|
2,294 |
|
|
|
788.3 |
% |
Other, net |
|
|
(862 |
) |
|
|
1,278 |
|
|
|
(2,140 |
) |
|
|
(167.4 |
)% |
Total other income (expense) |
|
$ |
5,380 |
|
|
$ |
10,428 |
|
|
$ |
(5,048 |
) |
|
|
(48.4 |
)% |
For the three months ended September 30, 2023, other income (expense) decreased by $5.0 million compared to the prior year period. The decrease was primarily related to a change in the fair value of the warrant liabilities due to the decrease in the price of our Class A common stock (see Note 3, “Fair Value of Financial Assets and Liabilities” in our unaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q).
45
Comparison of Nine Months Ended September 30, 2023 to September 30, 2022
|
|
Nine Months Ended |
|
|
|
|
|
Percent |
|
|||||||
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
Increase |
|
|
Increase |
|
||||
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Product sales and rentals |
|
$ |
3,633 |
|
|
$ |
2,920 |
|
|
$ |
713 |
|
|
|
24.4 |
% |
Services |
|
|
4,062 |
|
|
|
4,061 |
|
|
|
1 |
|
|
|
0.0 |
% |
License, royalty and other |
|
|
2,964 |
|
|
|
6,865 |
|
|
|
(3,901 |
) |
|
|
(56.8 |
)% |
Total revenues |
|
|
10,659 |
|
|
|
13,846 |
|
|
|
(3,187 |
) |
|
|
(23.0 |
)% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost of revenues (excluding amortization of acquired |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Product sales and rentals |
|
|
1,486 |
|
|
|
1,711 |
|
|
|
(225 |
) |
|
|
(13.2 |
)% |
Services |
|
|
1,355 |
|
|
|
3,112 |
|
|
|
(1,757 |
) |
|
|
(56.5 |
)% |
License, royalty and other |
|
|
3,566 |
|
|
|
9,595 |
|
|
|
(6,029 |
) |
|
|
(62.8 |
)% |
Research and development |
|
|
30,737 |
|
|
|
67,373 |
|
|
|
(36,636 |
) |
|
|
(54.4 |
)% |
Software cease-use costs |
|
|
24,161 |
|
|
|
— |
|
|
|
24,161 |
|
|
|
100.0 |
% |
Selling, general and administrative |
|
|
37,508 |
|
|
|
46,941 |
|
|
|
(9,433 |
) |
|
|
(20.1 |
)% |
Change in fair value of contingent consideration liability |
|
|
(104,339 |
) |
|
|
(73,441 |
) |
|
|
(30,898 |
) |
|
|
42.1 |
% |
Goodwill impairment |
|
|
112,347 |
|
|
|
— |
|
|
|
112,347 |
|
|
|
100.0 |
% |
IPR&D impairment |
|
|
107,800 |
|
|
|
— |
|
|
|
107,800 |
|
|
|
100.0 |
% |
Amortization of acquired intangible assets |
|
|
1,640 |
|
|
|
1,640 |
|
|
|
— |
|
|
|
— |
|
Total operating expenses |
|
|
216,261 |
|
|
|
56,931 |
|
|
|
159,330 |
|
|
|
279.9 |
% |
Loss from operations |
|
$ |
(205,602 |
) |
|
$ |
(43,085 |
) |
|
$ |
(162,517 |
) |
|
|
377.2 |
% |
Net Revenues and Cost of Revenues
Net revenues for the nine months ended September 30, 2023 was $10.7 million, a decrease of $3.2 million, or 23% compared to the prior year period. The decrease was primarily due to a $3.9 million decrease in license, royalty and other revenues due to loss of business with Evolution, a former distribution partner offset by an increase in product sales.
Cost of revenues for the nine months ended September 30, 2023 was $6.4 million, a decrease of $8.0 million, or 55.6% compared to the prior year period. The decrease was primarily due to the recognition of previously deferred inventory material costs variances of $4.5 million in license, royalty and other cost of revenues for the prior year period as well as a decrease in license, royalty and other revenues.
Research and Development Expenses
Research and development expenses for the nine months ended September 30, 2023 were $30.7 million, a decrease of $36.6 million, or 54.4% compared to the prior year period. The decrease was primarily due to the Palantir platform fees captured in software cease-use costs in the current period, as well as lower personnel costs, lower clinical trial costs, lab supplies, and lower allocated costs as compared to the prior period reflecting our March 2023 reduction in force and decision to discontinue clinical trials of our cell therapy candidates.
Goodwill and IPR&D Impairments
Goodwill and IPR&D impairment charges for the nine months ended September 30, 2023 was $112.3 million and $107.8 million, respectively, due to the decline in future revenue projections in the Cell Therapy business driven by discontinuation of clinical trials and changes in our strategy and pipeline (see Note 6, “Goodwill and Intangible Assets” in our unaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q).
Software Cease-Use Costs
Software cease-use costs for the nine months ended September 30, 2023 was $24.2 million compared to $0 for the prior period due to the recognition of the remaining contract value associated with the Palantir platform fees. See Note 9 to our unaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q for additional information related to the Palantir agreement.
46
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the nine months ended September 30, 2023 were $37.5 million, a decrease of $9.4 million, or 20.1% compared to the prior year period. The decrease was primarily due to lower personnel costs and consulting expenses resulting from our March 2023 reduction in force.
Change in Fair Value of Contingent Consideration Liability
Change in fair value of contingent consideration liability for the nine months ended September 30, 2023 was $104.3 million, a decrease of $30.9 million, or 42.1% compared to the prior year period. The decrease resulted from a change in market-based assumptions as we discontinued our Cell Therapy clinical trials during 2023 (for more information about changes in the fair value of contingent consideration liability refer to Note 3, “Fair Value of Financial Assets and Liabilities” in our unaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q).
Other Income (Expense)
|
|
Nine Months Ended |
|
|
|
|
|
Percent |
|
|
|||||||
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
Increase |
|
|
Increase |
|
|
||||
Interest income |
|
$ |
205 |
|
|
$ |
155 |
|
|
$ |
50 |
|
|
|
32.3 |
% |
|
Interest expense |
|
|
(2,352 |
) |
|
|
— |
|
|
|
(2,352 |
) |
|
|
(100.0 |
)% |
|
Change in fair value of warrant liabilities |
|
|
6,788 |
|
|
|
31,613 |
|
|
|
(24,825 |
) |
|
|
(78.5 |
)% |
|
Change in fair value of debt |
|
|
(354 |
) |
|
|
(291 |
) |
|
|
(63 |
) |
|
|
(21.6 |
)% |
|
Other, net |
|
|
(4,527 |
) |
|
|
1,366 |
|
|
|
(5,893 |
) |
|
|
(431.4 |
)% |
|
Total other income (expense) |
|
$ |
(240 |
) |
|
$ |
32,843 |
|
|
$ |
(33,083 |
) |
|
|
(100.7 |
)% |
|
For the nine months ended September 30, 2023, other income (expense), net decreased by $33.1 million compared to the prior year period. The decrease was primarily related to a change in the fair value of the warrant liabilities due to the decrease in the price of our Class A common stock (see Note 3, “Fair Value of Financial Assets and Liabilities” in our unaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q).
Liquidity and Capital Resources
As of September 30, 2023, we had $0.3 million of cash and cash equivalents and an accumulated deficit of $851.3 million. Our primary use of our capital resources is funding our operating expenses, which consist primarily of funding the research and development of our cellular therapeutic candidates, and to a lesser extent, selling, general and administrative expenses.
As of the issuance date, we had approximately $0.3 million of unrestricted cash and cash equivalents available to fund our operations and no available additional sources of outside capital to sustain our operations and insufficient available cash to make the required Yorkville cash repayments, for a period of 12 months beyond the issuance date. These uncertainties raise substantial doubt about our ability to continue as a going concern. Refer to the Going Concern section above for further details.
To date, we have not had any cellular therapeutics approved for sale and have not generated any revenues from the sale of our cellular therapeutics. We generate limited revenues from our biobanking and degenerative disease businesses. We do not expect to generate any revenues from cellular therapeutic product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our therapeutic candidates, which we expect will take a number of years. If we obtain regulatory approval for any of our therapeutic candidates, we expect to incur significant commercialization expenses related to therapeutic sales, marketing, manufacturing and distribution as our current commercialization efforts are limited to our biobanking and degenerative disease businesses. As a result, until such time, if ever, as we can generate substantial revenue from therapeutics and sales of our biomaterials products, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements, including drawdowns under the At-The-Market Sales Agreement, dated as of September 8, 2022, by and between us and BTIG, LLC, Oppenheimer & Co. Inc. and B. Riley Securities, Inc., or the ATM Program, and we continue to explore licensing and collaboration arrangements for our cellular therapeutics as well as distribution arrangements for our degenerative disease business including our distribution agreements with CH Trade Group, Tamer and AD Ports to support expansion abroad. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. Failure to obtain this necessary capital or address our liquidity needs may force us to delay, limit or terminate our operations, make further reductions in our workforce, discontinue our commercialization efforts for our biomaterials products as well as other clinical trial programs, liquidate all or a portion of our assets or pursue other strategic alternatives, and/or seek protection under the provisions of the U.S. Bankruptcy Code.
47
We expect to incur substantial expenses in the foreseeable future for the development and potential commercialization of our cellular therapeutic candidates, expansion of our degenerative disease business and ongoing internal research and development programs. At this time, we cannot reasonably estimate the nature, timing or aggregate amount of costs for our development, potential commercialization, and internal research and development programs. However, to complete our current and future preclinical studies and clinical trials, and to complete the process of obtaining regulatory approval for our therapeutic candidates, as well as to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our cellular therapeutic candidates, if approved, and biomaterials products we may require substantial additional funding in the future.
To date, inflation has not had a significant impact on our business. However, any significant increase in inflation and interest rates could have a significant effect on the economy in general and, thereby, could affect our future operating results.
Cash Flows
The following table summarizes our cash flows for the nine months ended September 30, 2023 and 2022:
|
|
Nine Months Ended |
|
|||||||||
|
|
September 30, 2023 |
|
|
September 30, 2022 |
|
|
Change |
|
|||
Cash provided by (used in) |
|
|
|
|
|
|
|
|
|
|||
Operating activities |
|
$ |
(34,344 |
) |
|
$ |
(108,291 |
) |
|
$ |
73,947 |
|
Investing activities |
|
|
(3,468 |
) |
|
|
(4,457 |
) |
|
|
989 |
|
Financing activities |
|
|
24,108 |
|
|
|
118,153 |
|
|
|
(94,045 |
) |
Net change in cash, cash equivalents and restricted cash |
|
$ |
(13,704 |
) |
|
$ |
5,405 |
|
|
$ |
(19,109 |
) |
Operating Activities
Net cash used in operations for the nine months ended September 30, 2023 was $73.9 million lower than the prior year period, primarily due to lower inventory spend, adjustments for non-cash items such as impairments, and recognition of the Palantir cease-use liability (See Note 9).
Investing Activities
We used $3.5 million and $4.5 million of net cash in investing activities for the nine months ended September 30, 2023 and 2022, respectively, which consisted of capital expenditures in each period and $3.0 million used to acquire IPR&D for the nine months ended September 30, 2023.
Financing Activities
We generated $24.1 million of net cash provided by financing activities for the nine months ended September 30, 2023, which consisted primarily of $12.8 million from the March 2023 and May 2023 private placements, $5.0 million of proceeds from the Starr Bridge Loan, $12.4 million of proceeds from the RWI Loans, $3.0 million of other short-term debt proceeds, $9.0 million from the April and July 2023 registered direct offerings, offset by principal repayments on the Yorkville PPA of $16.8 million and $1.5 million of issuance costs. For the nine months ended September 30, 2022 we generated $118.2 million of net cash provided by financing activities, which consisted primarily of $46.5 million in cash proceeds from the exercise of warrants to acquire 13,281,386 shares of our Class A common stock, $27.4 million in cash proceeds from the May 2022 PIPE financing, $39.2 million in cash proceeds from the Yorkville pre-paid advance agreement, and $4.4 million in cash proceeds from the sale of common stock in the ATM offering.
Critical Accounting Estimates
Our significant accounting policies are summarized in Note 2, “Summary of Significant Accounting Policies,” included within the Notes to our unaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q and in Note 2 to our audited annual financial statements included in the 2022 Form 10-K.
There have been no significant changes in our critical accounting policies during the nine months ended September 30, 2023 as compared with those previously disclosed in the 2022 Form 10-K.
Recent Accounting Pronouncements
See Note 2 to our unaudited condensed consolidated financial statements included herein and Note 2 to our audited annual financial statements for the year ended December 31, 2022 included in the 2022 Form 10-K for information about recent accounting
48
pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and results of operations.
JOBS Act Accounting Election
We are an “emerging growth company,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.
We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The term “disclosure controls and procedures”, as defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act or the Act, means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2023. Based on that evaluation, management concluded that such disclosure controls and procedures were not effective, at the reasonable assurance level, as of September 30, 2023, as a result of the material weaknesses in internal control over financial reporting discussed below.
Material Weaknesses in Internal Control over Financial Reporting
In our most recently filed Form 10-K, we previously disclosed material weaknesses in our internal control over financial reporting as of December 31, 2022. Specifically, we had insufficient resources with the appropriate knowledge and expertise to design, implement, and operate effective internal controls over our financial reporting process that contributed to other material weaknesses within our system of internal control over financial reporting at the control activity level.
During the current quarter, we identified additional deficiencies that individually and in the aggregate represent material weaknesses in our internal control over financial reporting. Specifically, we continued to experience losses of resources with the appropriate knowledge and expertise that contributed to additional material weaknesses within the risk assessment, information and communication, and monitoring components of internal control. As a result, we have identified the following material weaknesses as of September 30, 2023:
49
Plans for Remediation of Material Weaknesses
We are currently implementing our remediation plan to address the material weaknesses identified above. Such measures include:
Remediation of the identified material weaknesses and strengthening our internal control environment will require a substantial effort throughout 2023 and beyond, as necessary. We will test the ongoing operating effectiveness of the new and existing controls in future periods. The material weaknesses cannot be considered completely remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Changes in Internal Control over Financial Reporting
Except for the identified material weaknesses described above and related remediation efforts to date, there have been no changes in our internal control over financial reporting that occurred during our third fiscal quarter ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
50
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in litigation or other legal proceedings. Except as set forth below, we are not currently a party to any litigation or legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact because of defense and settlement costs, diversion of management resources and other factors.
Arbitration Demand from Palantir Technologies Inc.
On April 20, 2023, Palantir Technologies Inc., or Palantir, commenced an arbitration with JAMS Arbitration asserting claims for declaratory relief and breach of contract relating to the May 5, 2021 Master Service Agreement, or the Palantir MSA, seeking damages in an amount equal to the full value of the contract. We responded to the arbitration demand and asserted counterclaims for breach of contract, breach of warranty, fraudulent inducement, violation of California’s Unfair Competition Law, amongst others, in relation to the Palantir MSA. While we believe that Palantir’s claims are without merit and intends to vigorously defend against those claims, there can be no assurance as to the outcome of the arbitration.
Celularity Inc. v. Evolution Biologyx, LLC, et al.
On April 17, 2023, we filed a complaint against Evolution Biologyx, LLC, Saleem S. Saab, individually, and Encyte, LLC (collectively, Evolution) in the United States District Court for the District of New Jersey to recover unpaid invoice amounts for the sale of our biomaterial products in the amount of approximately $2.35 million, plus interest. In September 2021, we executed a distribution agreement with Evolution, whereupon Evolution purchased biomaterial products from us for sale through Evolution’s distribution channels. We fulfilled Evolution’s orders and otherwise performed each of our obligations under the distribution agreement. Despite attempts to recover the outstanding invoices and Evolution’s promise to pay, Evolution has refused to pay any of the invoices and has materially breached its obligations under the distribution agreement. Our complaint asserts claims of breach of contract and fraudulent inducement, amongst others. We intend to vigorously pursue the matter to recover the outstanding payments owed by Evolution, as well as interest and reasonable attorney's fees, but there can be no assurance as to the outcome of the litigation.
Civil Investigative Demand
We received a Civil Investigative Demand, or the Demand, under the False Claims Act, 31 U.S.C. § 3729, dated August 14, 2022, from the U.S. Attorney’s Office for the Eastern District of Pennsylvania. The Demand requests documents and information relating to claims submitted to Medicare, Medicaid, or other federal insurers for services or procedures involving injectable human tissue therapy products derived from amniotic fluid or birth tissue and includes Interfyl. We are cooperating with the request and are engaged in an ongoing dialogue with the Assistant U.S. Attorneys handling the Demand. The matter is still in preliminary stages and there is uncertainty as to whether the Demand will result in any liability.
Item 1A. Risk Factors.
Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
|
|
|
51
Exhibit Number |
|
Description |
|
|
|
3.1 |
|
|
3.2 |
|
|
3.3 |
|
|
10.1 |
|
|
10.2 |
|
|
10.3 |
|
|
10.4 |
|
|
10.5 |
|
|
10.6 |
|
|
10.7 |
|
|
31.1 |
|
|
31.2 |
|
|
32.1* |
|
|
32.2* |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document- the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
|
The cover page for the Company’s quarterly report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101 |
# Indicates a management contract or any compensatory plan, contract or arrangement.
* The certifications attached as Exhibits 32.1 and 32.2 accompanying this report are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Celularity Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this report, irrespective of any general incorporation language contained in such filing.
52
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
CELULARITY INC. |
|
|
|
|
|
Date: January 2, 2024 |
|
By: |
/s/ Robert J. Hariri |
|
|
|
Robert J. Hariri, M.D., Ph.D. |
|
|
|
Chief Executive Officer |
|
|
|
(Principal Executive Officer) |
|
|
|
|
Date: January 2, 2024 |
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By: |
/s/ David C. Beers |
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David C. Beers |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
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